First, I want to thank you for continuing to place your faith and trust in me to provide you with quality financial and investment guidance as I transitioned to starting my own firm. The transition went fantastic and now it’s time for me to get back to work.
Today, I wanted to send you out my first market update. This is something I will be doing periodically and was something I was never able to do before while I was at Edward Jones. I am excited to be able to share my thoughts and give you insight into what I am seeing and thinking in a way that I never could before.
I wanted to address the two main headline concerns that I feel most of you are seeing today. These are the delta variant and inflation. First, lets discuss the delta variant. This variant is causing concern because of how contagious it is and how it is resistant to the vaccine. Studies have shown that while you can have the vaccine you can still contract this variant, and thus spread it. We are all fearful of another shutdown. So, as investors, what does this mean for us. After seeing the havoc last years shutdown caused on the markets, its understandable for that fear to still be fresh in our minds.
Here is my take on the situation. At this point, I think the genie is out of the bottle. Meaning, after there have been mass vaccinations and the reopening of the economy, I don’t see measures as drastic as last year being taken again. I don’t see another full fledged economic shutdown. Recently, you have seen mask mandates again in certain areas. That is something that could become more prevalent especially as we move towards the fall and winter. This may temporarily shake the market. That would not surprise me and its something to be prepared for. If we experience significant volatility because of this, I am going to look to be tactical and opportunistic. That is the game plan.
Next, let’s address inflation. Many of you can remember the late 70’s and early 80’s when interest rates and inflation were double digits. I don’t see us heading back to that same level. Much of the inflation growth we have seen over the past year is due to Covid. The pandemic caused an economic shutdown that caused demand to decline in some areas. That demand has now increased as the economy has come back online. As demand rises, so do prices. Basically, that demand is returning to normal levels.
The other issue affecting inflation is the supply chain. As demand has risen, supply has not. Actually, supply has declined in certain areas because of supply chain issues. This is a double whammy to prices. The global supply chain issues that multi-national corporations are facing right now will not be permanent. These are highly sophisticated entities that have one goal in mind: sell more product. They want their operations to get back online and they will work to do it. It would not surprise me to see pockets of inflation in certain areas continue for some time, but I do not believe that we are on the precipice of rampant inflation that will overheat the economy. Don’t forget that the Federal Reserve still is holding rates at 0%. This is a lever they can pull if things start to get out of control.
With all that being said, these are the two main issues that I see that could cause some choppiness in the markets, but I don’t think they cause a major market event. We haven’t seen much volatility this year. The largest move we’ve seen is -3.5% back in May. By historical standards, it has been quite calm. Last year, the market was down -35% at one point for comparison. So, as always, be prepared for volatility. It’s normal and usually an opportunity to take advantage of good companies on sale. I will be keeping a close eye on these issues and trying to position you as best I can based on what is happening.
If you have any questions or would like to discuss this further, feel free to email me or give me a call. Also, feel free to share this with anyone else you know who might find it helpful.