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October 5, 2021

September market review

Dear Clients and Friends of the Firm:

Markets prefer clarity – or at least as close a facsimile as they can get. Since the start of the pandemic, we've seen how markets can push through uncertainty, up to a certain point.

September, however, brought a stack of compounding uncertainties, combining to end the S&P 500's seven-month streak. To understand what caused this downward tilt, look to these four Cs:

  • China: The potential default of Evergrande, the Chinese real estate giant
  • Congress: Brinkmanship over the federal debt ceiling and pending legislation
  • Commodities: The rapid oil price hike to values not seen since 2018
  • COVID-19: The continuing surge, even as global lockdowns are at a low point

These and other issues have led Federal Reserve officials and most economists to slightly lower their expectations for 2021 gross domestic product growth.

“Supply chain difficulties have lasted longer and have been more severe than anticipated and will likely continue into the early part of 2023,” Raymond James Chief Economist Scott Brown said. “Inflation forecasts for 2021 have moved higher, though Federal Reserve officials still view much of the increase as transitory. Needless to say, there is a high level of uncertainty in the economic outlook.”

Still, there are good reasons to see the strength underneath this September dip and to consider it in context, Chief Investment Officer Larry Adam said.   

“Market performance highlights the underlying strength and resiliency of this bull market as indices bounced back from their worst day since May and are about 5% from recent record highs,” Adam said. “Fundamentals continue to provide support for this young bull, even as we recommend caution in the short term given the uncertain environment.”

Let's see where we're at as we enter the last quarter of the year.

 

 

 

 

 

 

 

 

 

 

 

And here's a look at some other ongoing and related issues here and abroad: 

Federal Reserve may start drawdown of pandemic policies

The Federal Reserve's Federal Open Market Committee (FOMC) may slow down its $120 billion per month purchases of long-term securities – a pandemic response – if the economy continues to grow as expected. A plan to taper the purchases through the middle of 2022 could be announced at its November policy meeting, Chair Jerome Powell said. Notably, Federal Reserve officials are not debating when to raise short-term interest rates, but most have moved their preferred timeline forward. They are now evenly split on whether an initial rate hike will occur next year.

Treasuries feed on Fed news

Treasuries sold off following the FOMC meeting, pushing yields higher across the curve. The belly of the curve has seen the most movement, emphasizing that opportunity still exists in high-quality corporate bonds around four to eight years in maturity. Municipal yields have inched higher alongside Treasuries, with the benchmark 10-year, AAA bond yield topping 1.10% for the first time since March.

Congress brings clarity and opacity

This month, we got the first glimpse of details in the much-debated budget reconciliation bill. Things remain hazy – we can expect more details through October. Here's what we know, with an understanding it's in flux.

Proposed tax policy changes include:

  • The introduction of a progressive corporate tax rate
  • An increase in the top individual income tax rate to 39.6%
  • A 3% surcharge for individuals with income over $5 million a year
  • An increase of investment taxes to 25%
  • A number of changes to high-balance IRAs and restrictions on Roth IRA conversions

Also being discussed are lower estate tax exclusions, increased IRS enforcement and changes to international taxes. Overall, the known provisions are trending more moderate than those initially proposed by President Biden.

While the Senate and House passed a bill ensuring government funding through early December, a looming debt ceiling showdown is making the future murkier for the markets. Congress will need to act within an October to November time frame to avoid a default. 

The world report

Improvements in job creation numbers didn't keep European markets from falling modestly through September. Energy prices also pushed higher on a round of fuel panic buying in the U.K. and an unrelated fire that interrupted transmissions with continental Europe. Moving forward, key focuses include third-quarter corporate earnings and the formation of Germany's next coalition government. 

The Chinese and Hong Kong markets were volatile throughout the month on the heels of Evergrande's debt uncertainty and the continued evolution of corporate policy in China. In the energy space, Chinese authorities have cracked down on carbon-intensive activities, including cryptocurrency mining and some manufacturing operations.

And while COVID-19 inoculations have continued to build across the emerging markets, rising inflation levels were apparent in many countries, which has led to tighter monetary policy at a number of central banks.

The bottom line

The events that led to September's retreat are unfortunate, but they by no means indicate the end of a momentous period of growth. We continue to see resiliency in the market as investors have been quick to “buy the pullback” in this low-rate environment. Further:

  • The cure for uncertainty is often time. As issues are resolved – or their effects clearly known –the future-focused markets find confidence again.
  • The underlying market fundamentals remain strong. We see continuing growth despite new issues emerging and old ones hanging on longer than expected.

Thank you for your ongoing trust. We are steadfastly committed to you and your economic well-being and happy to answer any questions you may have about this monthly market update, your investments or your financial plan.

On a Personal and Fun Note - Ghoulish delights for trick-or-treaters

Halloween festivities are fast approaching, and it's about time to decide which treats you'll give to the kids crowding around your door this year. While most of us find it hard to resist a classic chocolate bar, coming up with new treats to dole out can add a fun twist to the trick-or-treating tradition.

If you've been racking your brain for alternatives to candy bars and lollipops, keep these options in mind when picking up Halloween supplies:

  • Stickers and removable tattoos – Goblins, ghouls and other spooky characters are all the rage around Halloween. Hand out some temporary tattoos or stickers and your house is sure to be a hit.
  • Individually wrapped snacks – There's an assortment of lunchbox treats that can double as Halloween goodies, including gummy fruit snacks, granola bars and small chip bags.
  • Bubble bottles – Adorn your neighborhood with the whimsical sight of bubbles on Halloween by giving out this classic party favor.
  • Glow sticks – Available as bracelets, necklaces and traditional glow sticks, these handouts can help trick-or-treaters light their way for the rest of the night.
  • Sweet drinks or water bottles – Walking door to door with a pillowcase full of candy can tire anyone out. Fill a tub with ice and your drinks of choice, such as small water bottles, mini soda cans and natural fruit juice boxes, and then offer them to children and parents alike.

Picking one of the items above – or thinking up a Halloween handout of your own – can make it easier to offer non-candy options that kids will still want in their treat bags. You might even save yourself a few dollars in the process.

We wish you and your loved ones a hair-raising Halloween, filled with tricks, treats and time spent with those who matter most.

Sincerely,

 

Tricia L. Tripp, CPA, CFP®
Financial Advisor

Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC. Investment Advisory Services are offered through Tripp Financial Consultants, Inc. Tripp Financial Consultants, Inc.is not a registered broker/dealer and is independent of Raymond James Financial Services, Inc.

All investments are subject to risk, including loss. All expressions of opinion reflect the judgment of the authors and are subject to change. There is no assurance the trends mentioned will continue or that the forecasts discussed will be realized. Past performance may not be indicative of future results. Economic and market conditions are subject to change. The Dow Jones Industrial Average is an unmanaged index of 30 widely held stocks. The NASDAQ Composite Index is an unmanaged index of all common stocks listed on the NASDAQ National Stock Market. The S&P 500 is an unmanaged index of 500 widely held stocks. The S&P 500 Value is a market-capitalization-weighted index developed by Standard and Poor's consisting of those stocks within the S&P 500 Index that exhibit strong value characteristics. The S&P 500 Growth Index is a stock index that represents the fastest-growing companies in the S&P 500. It is currently heavily weighted toward prominent American technology companies. The MSCI EAFE (Europe, Australia, Far East) Index is an unmanaged index that is generally considered representative of the international stock market. The Russell 2000 is an unmanaged index of small-cap securities. The Bloomberg Barclays U.S. Aggregate Bond Index is a broad-based flagship benchmark that measures the investment-grade, U.S. dollar-denominated, fixed-rate taxable bond market. An investment cannot be made in these indexes.

The performance mentioned does not include fees and charges, which would reduce an investor's returns. Small-cap securities generally involve greater risks. International investing is subject to additional risks such as currency fluctuations, different financial accounting standards by country, and possible political and economic risks. These risks may be greater in emerging markets. Companies engaged in business related to a specific sector are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification. The value of fixed income securities fluctuates and investors may receive more or less than their original investments if sold prior to maturity. High-yield bonds are not suitable for all investors.

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