Stocks enter September on a high, thanks to easy money from the Fed and markets flush with cash.
The news flow this past month was not pleasant with the deadly and disastrous Kabul exit and the Delta variant of Covid-19 causing a spike in infections country wide. Nevertheless, low interest rates continue, Q2 earnings were better than anticipated and markets rose to record highs.
September averages a 0.56% decline in the S&P 500 historically according to Reuters, but over the last two years the market has seemed to yawn at historic patterns. Last September we had a nearly 10% drop, after the rapid climb off the March 2020 lows. But as they say, "that's history".
Bull markets are said to climb a wall of worry and boy do we have numerous concerns.
Our worries include a sharp drop on consumer confidence, inflation running at +4%, historically high P/E ratios, the Fed reducing liquidity, dependence on OPEC for additional energy supply, out of control spending by Congress and possible tax increases on both capital gains and income.
The good news is earnings are strong and still rising and competition from fixed income is negligible. Wall Street is already starting to look at the 2022 elections for a possible change in the Congressional majority that would favor investors. Markets prefer balance in D.C. to check extreme policies by either party.
America is a resilient nation, after periods of mismanagement we typically work the problems we face, change what needs to be changed and move in a more positive direction.
Enjoy the rest of the summer weather and stay safe!
Doug Coppola - Investment Committee Chairman
Steve Lindgren - Chief Investment Officer