September 2021 Monthly Outlook – Conundrum

While the equity market continues to grind higher in spite of headwinds like the Delta Covid variant, the bond market appears to be pricing in an economic slowdown of some magnitude. Persistently low interest rates and tight credit spreads (the interest rate difference between US Treasuries and corporate bonds), in the face of robust GDP growth and higher inflation readings, have economists and financial market analysts scratching their heads.  I’m in that group.

With the recent surge in covid cases, kids returning to school, and ongoing pandemic-related challenges, the fall could make for some volatile economic and financial activity.

From an investing point of view, I reflect on this quote from the Irish author of the Skulduggery book series.  “Tides do what tides do – they turn.” – Derek Landy

My concern is that given where the markets are today, a turn in the tide could be significant as shown below:

“The chart below illustrates the percentage of stocks as a percentage of total household financial assets. The concept behind this data series is that when investors as a group become overly exposed to stocks, the probability of everyone reacting negatively to a financial shock is heightened. Interestingly, the most recent peaks in the data series occurred in 1999 and 2007. Both periods were good times to be thinking about risk management. As shown below, the current reading as of March 2021 is higher than in either of those periods.”

While this chart is as of March 31, 2021, the continued increase in equity markets since then has only extended this relationship.  This is likely true in your case as well.  Your home has certainly grown in value as has your 401k and the portfolio we manage for you.  But so has your exposure to stocks relative to your total financial assets.

We are holding our allocations to equity and bonds at their current level but we have tightened up our risk management levels, which will kick in if the “tide turns”.

Please call us if you have any questions or concerns.  Feel free to share this report with any family and friends who would benefit from it.

September Calendar of Events (comments and additions for future months are always welcome)

  •  

Sept 6th         Labor Day

Sept 6th          Rosh Hashana begins – wishing all our family, friends, and colleagues of the Jewish faith Shanah tovah um’tukahar of Events

Sept 11th        Patriots’ Day – honoring those who lost their lives on 9/11/01.  It’s the 20th anniversary of that fateful day.  Hard to believe.

Sept 12th       Grandparents Day

Sept 15th       Yom Kippur- Chag Sameach

Sept 22nd       Autumn begins – let’s pray it doesn’t include another COVID spike

Best regards,

Jim

Sources:  Ned Davis Research, Nottingham Advisors, Bespoke Investment Group

Although information herein has been obtained from sources deemed reliable, its accuracy and completeness are not asserted. All opinions and estimates included in this report constitute the judgment of the financial advisor as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

Investing involves risk and you may incur a profit or a loss. Diversification does not ensure a profit or ensure against a loss. There is no assurance that any investment strategy will be successful.  Past performance is no assurance of future results.

Please consider the charges, risks, expenses and investment objectives carefully before investing. Please see a prospectus containing this and other information. Read it carefully before you invest or send money. Information provided should not be construed as legal or tax advice.  You should discuss any tax or legal matter with the appropriate professional.

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