Happy Fall! Here are some of the economic highlights from the summer months of 2021. The delta variant, political gridlock, and inflation were the three key themes in the third quarter of 2021. Let’s break it down:
Our economy and the stock market are still linked to public health and the COVID 19 virus. In the third quarter we saw the emergence and dominance of the delta variant, which has led to increased rates in cases, hospitalizations, and deaths. This comes as we saw substantial improvements in worldwide vaccination rates.
The two dominant political parties in the US can’t seem to agree on a clear path forward on several key issues including infrastructure, the debt ceiling and COVID recovery.
We saw meaningful wage increases for the first time in over a decade. These increases however were not felt due to simultaneous increases in inflation in areas such as groceries, rent, and gas.
So why has the S&P 500 Index risen 15.92% since the beginning of the year, and the MSCI Index is up 8.35%? In short, the economy is not the stock market and the stock market is not the economy. In the past 18 months we have seen the resiliency of companies and their ability to continue to produce goods and services we need in an era of supply chain constraints, labor shortages, and general uncertainty.
I personally remain bullish on human and corporate resiliency and the ability of businesses to pivot quickly to adapt to an ever-changing political, economic, and social climate.
Here are a few points we have an eye on moving forward:
Inflation - We believe inflation may remain elevated, but will return to the Federal Reserve’s 2% long-term target. A clear risk to this scenario is a resurgence of the virus causing shut-downs, further stimulus and/or policy inaction in Washington.
US Debt Levels - A debt crisis arises when investors are no longer willing to purchase a country’s debt, and that is unlikely to happen in the U.S. Current debt levels are sustainable given the low interest rate environment as well as available government measures. The U.S. dollar remains the world’s reserve currency.
As always, we are here for you to help you prepare for your financial future by identifying objectives, assessing risk tolerance, and remaining well-diversified across asset classes.
Until the end of the year,
