Dear Friends and Clients,
In our last market update we indicated that although times were uncertain, we felt cautiously optimistic about the market as a whole. It also looked as though we may have a normal, healthy 5-10% pullback in the market. Should that occur, we would take advantage of any downturns as buying opportunities.
And boy have we had some! The market has been up and down big over the last few weeks.
What is our thinking moving forward?
Bottom Line: So far this is a normal, healthy correction and we still believe that we are PROBABLY at the beginning of a new Bull Market.
What has been causing this volatility in the stock and bond markets?
Simply put, the bond market is concerned about a rise in inflation, so the yields (interest rates) are racing up. In recent weeks the 10-year bond yield is nearing 1.6%, and this causes bond prices (therefore bond mutual funds) to drop. As painful as this has been for bondholders, the stock market is starting to take notice. Just remember although yields are surging, they are still very low! Our guess is the rise in bond yields will soon take a breather around the 1.6% area before going any higher.
Inflationary panic could calm down as markets remember that the Federal Reserve is always on the lookout for long term inflation (not necessarily short term spikes) and it will be hyper vigilant. Also we aren't seeing many of the traditional signs of long term inflation, like a tight labor market. So far, the rise is based on the awesome growth in our economy and long term that is a positive thing.
For the stock market, the risk of inflation in 2021 is probably not all that important right now. According to various market watchers:
1) Real economic growth is projected to be the best in 35 years in 2021.
2) Money is just now starting to move from the bond market to the stock market.
3) Unemployment is expected to end the year at close to 4%
4) The Vaccine makes it likely that consumer demand will be higher, while inventories are at lows.
This all adds up to a proverbial "shot in the arm" to our economy and stock market.
It is also important to keep perspective and remember this is a marathon not a sprint. With that in mind, even in a bull market you should anticipate periodic changes and corrections along the way. The market generally moves in a jagged incline, and we anticipate that will very much be the case moving forward.
It is our job to rise above the 'noise' and decipher appropriate logical strategies. We are here to help navigate the ups and down. A major component of that is weighing out the potential risk/reward benefits for each individual client, which we will of course continue to do.
If something changes in our market view, we assure you that we will let you know and that we may turn defensive. We will continue to let the market tell us what it wants to do.
Please reach out if you have any questions.
Cynthia Fick and Gina Wight
Financial Life Planners LLC
Stock Market Update
March 08, 2021