At PearTee Advisory Group, it is important to us that you are well informed about what is happening in the markets. Here are a few of the key topics of conversation that we feel deserve the most attention this month.
The first half of September has shown an increased level of equity market volatility as technology stocks pulled back. In the Nasdaq Composite Index, an official correction (-10% off the high) was reached in just four trading days – the fastest ever on record.
Most experts agree equity markets have largely risen based on speculation and the expectation of further government stimulus. We believe that markets have a chance to continue declining in the short-term as economic data is digested from the COVID slowdown.
In a statement released on 9/16, the Fed said it decided to keep its policy interest rate at near-zero through at least 2023. They expect their approach will be appropriate until two things happen:
- Labor market conditions return to the “maximum employment” and inflation has risen to 2% and “is on track to moderately exceed 2% for some time.”
- The Fed also said it would continue to purchase at least $120 billion per month of Treasuries and agency mortgage-backed securities to help smooth fixed income markets and help “foster accommodative financial conditions.”
Markets initially reacted positively to the news of “low rates for a long time,” then quickly turned south as investors saw such heavy-handed measures as a sign of strong economic headwinds.
Why is it Important?
Some economic data continues to recover, albeit at a lower rate. For example, U.S. consumers increased retail spending in August for the fourth straight month but at a slower pace than earlier in the summer. We expect consumer spending to remain slow due to the extreme level of purchasing in the early stages of the pandemic, especially those related to physical technology.
Unemployment continues to decline but is still at historically high levels (8.4% in August). However, many experts dispute the accuracy of that reading because of the millions of people that have decided to “leave” the workforce to stay at home with their school-aged children. Accounting for that anomaly (and others), some analysts report actual unemployment to be upwards of 11%.
What we are watching.
Getting closer to the Presidential election, all eyes are on the economy as voters are most eager to hear from each candidate on how they plan to guide our country back to its previous condition.
Beyond that, countless studies and analyses have shown there is no benefit to basing your investment philosophy around which political party is in power. We will see if this plays out the same this election cycle.
That is why our investment process is rooted in the numbers and the understanding what the market is telling us. This helps keep the emotions out of decision making when it comes to your portfolio.
Our expectation is for economic data to gradually improve off the April lows and for market levels to gradually decrease from the September highs until an “equilibrium” balance between the equity market and the economy is reached. This process is generally slow-moving, and there is a chance that we may not reach a balance until mid to late 2021.As much as we had all hoped for a V recovery it looks as if the Nike Swoosh is a better representation of the recovery. In the short-term, we expect continued volatility through the election and continue to monitor when a defensive approach to investment allocations is warranted.
If you have any questions or would like to continue the conversation, let us know, and we appreciate the opportunity.