Today’s Market News: What You Need to Know
Many factors are at play as we look to today’s market news. In August, the Dow Jones Industrial Average gained 1.2% (Source: https://www.cnbc.com/2021/new08/30/stock-market-futures-open-to-close-news.html), and our portfolios followed suit with good performance as well. Since we updated our trading strategy on 4/1/2021, our portfolios have performed well, and we encourage you to review your own statements. In addition, we encourage you to review your personal investments statements, read today’s market news, and call us with any questions.
Is this typical “Year 2” Market Behavior?
In February of 2020, the stock market dropped very quickly after Covid shut down the economy. Afterward, the stock market rebounded fairly quickly. Many economists believe that the Covid drop was the conclusion of a bear market, and a new bull market started in April of 2020. In our experience and based upon our research, the first year of a bull market is typically perfect for the stock market, and most areas of the stock market tend to perform well. However, the second year of a bull market is typically a more difficult environment. History has shown there to be clear winners and losers, and leadership can change very quickly. Simply put: It’s usually messy.
Making Sense of Today’s Market News
For example, from 6/4/2021 until 6/18/2021, the Dow Jones index dropped 1,466.31 points, or 4.2% (Source: https://finance.yahoo.com/quote/%5EDJI?p=%5EDJI). During that same time, the technology-heavy Nasdaq index rose 1.56% (Source: https://finance.yahoo.com/quote/%5EIXIC?p=%5EIXIC). Technology had been underperforming for months before this two-week period. That is a vast disparity, but this sort of movement is common during the second year of a bull market, in our opinion.
How Will Afghanistan and the Taliban Affect the Market?
Now that the 20-year war in Afghanistan has ended, many clients have been calling in asking how this may influence the stock market. In the short term, we do not believe it will have an effect. Their GDP is only 19.8 billion dollars per year (for comparison, the US GDP is 21.43 trillion dollars per year), so we don’t believe this will move the needle from an economic standpoint in the US. The number one concern, in our opinion, moving forward is terrorism. The Taliban has a rival that was founded by disgruntled former Taliban members, the ISIS-K. It seems these two factions will be battling it out for some time (Source: https://www.washingtonpost.com/opinions/2021/08/29/abdul-sayed-isis-k-taliban-afghanistan-threat/). We are not ready to trust the Taliban, and ISIS-K is certainly an enemy of the United States, so that the main concern will be long-term terrorism risks all over the globe.
Factors Impacting Today’s Market News
There are many interesting points to consider when analyzing today’s market news. First, there will be a point when the stock market needs to take a breather. It may lose 5-10% quickly, and that may very well happen at some point early this fall, but we’re most likely going to view that as a buying opportunity as we are optimistic about the fall and holiday shopping season. So here is an updated list of our reasons to be optimistic, despite short term volatility:
- President Biden and congress appear to be getting closer to a bipartisan infrastructure plan that would include one billion in new spending. He is also open to not raising taxes on corporations as previously planned. Since the assumption today is that taxes would increase, this is a positive development. In addition, this could be a tremendous stimulus package for the stock market between the additional spending and pause on corporate tax increases.
- While there is a lot of concern in the medical community about the new Delta variant, the vaccines appear to help prevent ICU visits and death. In contrast, some people may experience mild symptoms despite being vaccinated. Overall, in our opinion, the US is experiencing nothing like what India experienced a couple of months ago when the Delta variant was expanding rapidly there. The world economy continues to re-open as more people get back to work, eat out, shop, go on vacation, and generally spend more. In addition, younger age groups nationwide now have the opportunity to get vaccinated, which can reduce both infections and deaths moving forward.
- Corporate profits are calculated year over year. In the last 3 months, corporations reported their earnings increases for 2021 versus the Covid ravaged 2020 numbers. At one point, the year-over-year growth in earnings was 105%! We continue to expect good numbers when the Q3 earnings season begins because of the easy year-over-year comparisons. (Source: https://www.nasdaq.com/articles/the-3-most-notable-features-of-q2-earnings-season-2021-08-06)
- The Federal Reserve has been printing money and buying investments with it, commonly called Quantitative Easing. This is very accommodative to investors and is one of the reasons the market rebounded last year after Covid first hit. We’re watching the Federal Reserve and the Federal Government for signs that they will tighten the money supply, most likely before year-end, as that will very likely influence the markets as well.
- Demographics will continue to be a tailwind for the next 15-20 years, the same way the stock market roared up in the 1980s and 1990s. Generation X is firmly in its peak spending years, and the Millennial generation (which is larger than the baby boomer generation) is entering its peak spending years. When we study this data over hundreds of years, we find that a country with a large portion of its population in peak spending years is very good for the economy and stock markets. We believe this tailwind will aid the stock market in 2021 and years to come.
What This Means for Your Investments
Because of these optimistic points, we hold stock positions in our portfolio. Moreover, recent market news points to the potential for continued all-time highs in the stock market. However, if you’d like to discuss how your portfolio is positioned from a risk standpoint, please reach out to us right away. In addition, if you’ve had any changes to your income, job status, marital status, 401K options, address, or any other financial changes, don’t hesitate to get in touch with the team at Summit Financial today.
If you found our article on today’s market news helpful, consider reading our recent posts on Bidens Tax Plan, Dividends, and Meme Stocks. We’ll continue to monitor your investments and do everything in our power to protect and grow your accounts.
Bob, Ken, Jim, and Zach
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