Market Update Q3 2021

Delta Delta

• Inflation Gains Ground  

• Raise Interest Rates

• Evergrande not so grand

• Government Shut Down and the Debt Ceiling

The Delta Variant, inflationary pressures, Fed action to raise interest rates, Evergrande, and funding the government were at the forefront of market concerns during the 3rd Quarter.  

A new strand of the Covid-19 virus infiltrated society in the 3rd quarter. Concerns of another global shutdown weighed heavy on the markets early in the quarter. The markets shrugged off these concerns. Strong Corporate earnings helped lead the way for the markets to move to all-time highs coming into September. 

Reduced inventories of goods caused by supply chain issues continued to present inflationary pressure on consumer prices. Partner this with a low interest rate policy, “Easy Money”, and stimulus programs that have given the consumer purchasing power, and we have a recipe for inflation. Low inventories with high consumer demand pushed prices up which acted as a headwind for the economy and made investors struggle with bouts of uncertainty during the Quarter.

The expectation of higher interest rates due to inflationary pressure caused the Fed to provide insight into the tapering of its asset purchase program. We could see action sometime this year, while a move to raise the Fed fund rates could come as soon as next year leading into 2023. 

Evergrande, a mostly unknown company to US investors, caused a great deal of investor concern in the last month of the Quarter. Evergrande is a Chinese real estate developer, who over leveraged itself and was not going to meet its obligations. All this happened while the Chinese were on holiday leaving the world uncertain as to the effect of such an event on the global economy. Markets tumbled off their highs. As of now the Chinese government bank has stepped in and acquired a large interest in the company and seeks to diversify away its risk by having other developers and businesses acquire Evergrande’s assets. We will wait to see any remaining fall out from the event.    

We end the quarter with the Federal government finding a way to fund itself and attempt to raise the debt ceiling. The markets reacted with a selloff in the final days of the 3rd Quarter thus causing the leading market indexes (S&P 500, NASDAQ, Russell 2000, and the Bond Aggregate) to finish the quarter lower from where they began in July. 

Low interest rates have historically related to strong economic growth, higher inflation, and a rising stock market in the US and Internationally. These conditions are not unusual to see as we bump up to all-time highs in the stock market, and bonds yields starting to trend higher in advance of tighter monetary policy. We remain intentional in our steps to invest based on the plans we have developed with you. If you have questions regarding your portfolio or your financial circumstances have changed, please do not hesitate to contact me.  

Abundance to you,

Scott Miller

Partner