Monthly Market Update:
Recap of September 2021
Fall is in the air and unfortunately, it isn’t just seasons. The stock market has fallen over the past few days breaking the S&P 500 seven month winning streak. In September, we saw uncertainty over the government shutdown, the not so Evergrande real estate company in China and the Fed’s announcement to taper bond purchases.
Don’t worry, I will try not to be negative Nancy for you on a Friday, but I do want to inform you of what we are seeing in the markets.
Part of the bumpy ride in September was due to the looming government shutdown. At this time, President Biden has signed a bill to prevent a shutdown until Congress can agree on terms for the budget. Now just to throw you some nerdy data, let’s take a look at the history of government shutdowns and how they affected the S&P 500.
Going back to 1976, the government has had 20 shutdowns. Of these 20 shutdowns the 2018 shutdown had the most impact on the S&P 500 with a -7.05% drop one week prior to the shutdown, though overall, the average S&P 500 drop was only -.23% and the median performance was actually positive .15%. That said, I always mention the media sharing the story that sells and in the case of the government shutdown destroying the economy, I think it is safe to say that on average, the shutdown has little impact on the overall markets.
What has had more impact recently has been the news from China. The Evergrande crisis has been storming the news. To break it down for you, Evergrande is a massive real estate company that also has wealth management, a soccer team and much more under their umbrella. China took a more conservative approach with lending and reduced the amount of debt a business could take on. Well, that spun Evergrande, or should I say, EverDebt into bad position because they carried a lot of debt making their money moves. At this time, they are continuously defaulting on debt obligations and their demise could create a large problem for China. Though we are in the US, investors tend to get leery with the stock market when a well established economy, such as China, starts to have trouble.
For the Feds, they have announced they will begin tapering bond purchases. This will limit the amount of money going to banks, which will lead to more stringent lending from banks because they will have less working capital. This is one of those where the government tries to do good, but too much good can be bad. The reason I say that is because the government started buying bonds or what is known as quantitative easing when the pandemic began last year. Now, we have an economy that has rebounded rapidly and inflation that is much higher than the 2% the government likes to see. So they must do something to tap the brakes on the economy to prevent inflation from getting out of control. We will see how well they do the brake tapping though because too much too soon could create whiplash for the rebounding economy.
Now that you have heard the reasons why the market took a dip, let me tell you what we are seeing. The first thing is that inflation is high and the only way to combat this is to stay in the market. The more stocks owned in a diversified portfolio, the better to combat inflation. Bonds don’t tend to fare as well during inflation, but for more conservative portfolios, the bonds play a key part in the event we do see a downturn. The best way to handle the markets as an investor is to focus on your financial plan that we have prepared and avoid the day to day market chatter.
Moving forward into the final quarter of 2021, we suspect to continue to see some bumps in the road, though the overall US economy is still showing strength. I encourage you to remain patient, keep a long-term view and always be sure you are invested based on your needs and comfort level.
For the month of September, the S&P 500 finished - 4.76%, Dow - 4.29%, Nasdaq - 5.31% and Barclays US Aggregate Bond Index -.87%