Each week we do our best to stay up on all things financial in our never-ending pursuit of good returns and healthy portfolios for our clients. Part and parcel of that is following the policy makers and the things they talk about, especially when they gather in herds or flocks in places like Jackson Hole, Wyoming or Davos, Switzerland. Fortunately for you and me, the markets don’t seem to care a lot about these wizards and the wisdom espoused by them – at least not immediately. They may cause some momentary volatility but what actually happens it seems, is that the process of time acts like a quality filter: Some of the pearls of wisdom will begin to grab traction and may then influence actual market direction. The remainder will simply become yesterday’s news.
Speaking of markets (you knew I would get to it) the bull is still in charge. Also important is that the bull has been successfully transitioning from ‘less bad news is good news’ to a more traditional ‘good news is good news’ posture. A case in point is that small changes in interest rates don’t trigger panic (as they have a couple of times in recent months) and good corporate earnings reports are treated as being good for the economy (which they are).
As I write this, a flock of wizards has gathered in the above-mentioned Jackson Hole to toss around ideas that could coagulate into policy. So far, two Fed members have said they are good with the Treasury backing off on their bond buying. In yesterday’s reality, that alone could set the markets a turning. So far though…nada. Has reality changed? Or just the underlying facts?
Fed head Powell is speaking at Jackson Hole and his voice always speaks the loudest. His reality is shaped by things like solid evidence of a very sound basic economy. However, there are headwinds including the dreaded Delta Variant and now the horrifying attack in Afghanistan, where ISIS has reappeared in deadly fashion. Sad and unfortunate news but in fact both will have a minor chilling effect — which may help the economy from overheating. The famous ‘tapering’ is on its way. The market knows that but is hoping for later rather than sooner.
Donald Rumsfeld was criticized when he invented the term ‘Unknown unknowns’. He shouldn’t have been. Today we call those things Black Swans. They are the things that show up irrespective of the fact that they were not part of anyone’s contingency planning. They weren’t in the strategic plans because they were not plugged in to our reality. That’s a problem. Just because they were not plugged in to our reality, it does not mean they were not part of the reality.
Bottom line here is that a number of ‘known things’ are on the radar and that will contribute to some volatility. But, also be prepared for the next ‘unknown unknown’. We are.
Ron’s Market Minute – Perspective August 2021
It is useful to take a long-term look at the market occasionally to put the current short-term environment in better perspective.
The market environment has deteriorated recently, and many funds and stock indices are now in short-term trading ranges, but the S&P 500* and most market indices are still in the bull market uptrends that started in March 2020.
The bull market will end at some point, of course, and getting out of harm’s way when the next bear market starts will be essential to preserve wealth. Just keep in mind, however, it is the big losses that we are trying to avoid, not every 3-5% minor correction. Our goal is to manage risk, not avoid all risk. If the small drawdowns in the stock market this year have been troubling, consider switching to a more conservative portfolio.
(Chart Source: Fasttrack)
Ronald P. Denk, CFP®
Investment Advisor
Denk Strategic Wealth Partners
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