October 2021 Newsletter

SEPTEMBER RECAP

Well, September certainly lived up to its billing as one of the most volatile months of the year!

After a run of seven consecutive positive months, the S&P 500 finally relented and gave back some gains, dropping just under -5% month-over-month. What happened?

When news broke that Evergrande, China’s second-largest real estate development firm, was struggling to pay its debts, the market sold off a bit. Exposure to Western firms appears limited, so Evergrande’s troubles seem mostly restricted to China.

September’s sell-off intensified on the news that Federal Reserve Chairman Jerome Powell wants to slow down the Fed’s direct stimulus program. Following the pandemic-induced recession last year, the Fed stepped in to bolster the US economy by printing money to buy bonds, which pushed down interest rates. Lower interest rates make it easier for consumers and companies to borrow money to buy things. People buying more stuff tends to stimulate growth and shorten the recession.

Objectively, that worked: 2020’s recession was the shortest on record and the economy seems to be on surer footing. As a result, the Fed wants to slow down their stimulus; however, it’s not as simple as turning off the money printer. Tapering the stimulus means balancing the needs of the economy against the risk of runaway inflation – no simple feat. And the market reacted very poorly the last time the Fed sought to reduce its stimulus in 2015, finishing flat for the year. So, this time, they’re trying to do it very carefully.

Hanging over the Fed’s decision is the fight over the Biden Administration’s $3.5 trillion spending proposal, which no doubt contributed to Wall Street’s uneasiness.

It all sounds very dire. In truth, Evergrande’s troubles appear to be contained, the spending fight is more political theatre than anything, and the Fed tapering, while with watching, implies a resilient US economy. In summary, September is a bump on what has otherwise been a strong year.

We’re grateful to count you as a client. If there’s anything you need, please schedule some time with our office.

MARKET COMMENTARY

Stocks

After seven consecutive months of positive performance, all three major indices finished the month lower.

Energy stocks were the lone positive sector in September, posting a +9.44% return for the month. With a year-to-date return of +43.34%, Energy stocks have handily outperformed the broad S&P 500 Index. Financials and Communications Services stocks struggled in September, though both continue to sit at the top of the sector leaderboard for 2021.

Consumer Discretionary, Consumer Staples, and Utilities each slipped in September, though they remain positive on the year.

Bonds

Bonds continue to struggle in 2021, with all three indexes producing negative returns in September. Corporate bonds (represented by the S&P 500 Bond Index) briefly turned positive in August before falling in September in the wake of the potential Fed taper news.

ECONOMIC DATA

The ports of Los Angeles and Long Beach are two of the three busiest ports in the United States, handling the bulk of the traffic from key trading partners like China, Vietnam, Japan, South Korea, and more. And right now, there is a sizeable queue.

The image below indicates the number of cargo freighters docked for either Los Angeles or Long Beach. The back-up is due to global firms racing to meet the surge in demand for goods.

In economics, this is known as ‘demand-pull inflation,’ an environment where too many dollars are chasing too few goods, precipitating a rise in the general price level. Inflation, as measured by CPI, has been essentially flat since June as the United States and its trading partners seel to navigate the evolving post-pandemic landscape.

OUTLOOK

Here’s what we’re watching in the month ahead:

Earnings season. Companies will begin reporting earnings for the third quarter in mid-October, giving us an opportunity to see how the ongoing recovery has impacted the world’s largest and most profitable companies. Last Quarter’s earnings season was objectively bullish.

Economic Provess vs COVID-19. Though COVID-19 fears have abated, concerns linger over the potential impact the delta variant may have on consumer spending, consumer confidence, and broad economic growth. As the US consumer goes, so goes the rest of the economy.

Federal Reserve comments. The Fed isn’t scheduled to meet this month, however, that doesn’t mean communications will stop. The Fed’s intent to reduce its asset purchases remains in focus for Wall Street, so any comments from Chairman Powell or other members of the Federal Reserve will be closely monitored.

We maintain our view that a balanced portfolio diversified amongst high-quality assets can help clients meet their financial objectives.

If you have questions about your portfolio, please schedule some time with our office!

News | October 21, 2021 | WMBC

Index Definitions

Dow Jones Industrial Average: The Dow Jones Industrial Average® (The Dow®), is a price-weighted measure of 30 U.S. blue-chip companies. The index covers all industries except transportation and utilities.

Dow Jones U.S. Real Estate Total Return Index: The index is designed to track the performance of real estate investment trusts (REIT) and other companies that invest directly or indirectly in real estate through development, management, or ownership, including property agencies.

NASDAQ Composite: The NASDAQ Composite is a market-cap weighted index of all issues listed on the Nasdaq stock exchange. It is heavily weighted towards the technology sector.

S&P 500 Bond Index: The S&P 500® Bond Index is designed to be a corporate- bond counterpart to the S&P 500, which is widely regarded as the best single gauge of large-cap U.S. equities. Market value-weighted, the index seeks to measure the performance of U.S. corporate debt issued by constituents in the iconic S&P 500.

S&P 500 Consumer Discretionary: The S&P 500® Consumer Discretionary comprises those companies included in the S&P 500 that are classified as members of the GICS® consumer discretionary sector.

S&P 500 Consumer Staples: The S&P 500® Consumer Staples comprises those companies included in the S&P 500 that are classified as members of the GICS® consumer staples sector.

S&P 500 Energy: The S&P 500® Energy comprises those companies included in the S&P 500 that are classified as members of the GICS® energy sector.

S&P 500 Financials: The S&P 500® Financials comprises those companies included in the S&P 500 that are classified as members of the GICS® financials sector.

S&P 500 Index: The S&P 500® index is a market-cap weighted index of the largest 500 companies headquartered in the United States. The index covers approximately 80% of available market capitalization.

S&P 500 Utilities: The S&P 500® Utilities comprises those companies included in the S&P 500 that are classified as members of the GICS® utilities sector.

S&P U.S. Aggregate Bond Index: The S&P U.S. Aggregate Bond Index is designed to measure the performance of publicly issued U.S. dollar denominated investment- grade debt. The index is part of the S&P AggregateTM Bond Index family and includes U.S. treasuries, quasi-governments, corporates, taxable municipal bonds, foreign agency, supranational, federal agency, and non-U.S. debentures, covered bonds, and residential mortgage pass-throughs.

S&P U.S. Treasury Bond Index: The S&P U.S. Treasury Bond Index is a broad, comprehensive, market-value weighted index that seeks to measure the performance of the U.S. Treasury Bond market.

Economic Definitions

Consumer Prices – CPI: Consumer prices (CPI) are a measure of prices paid by consumers for a market basket of consumer goods and services. The yearly (or monthly) growth rates represent the inflation rate.

PCE (headline and core): PCE deflators (or personal consumption expenditure deflators) track overall price changes for goods and services purchased by consumers. Deflators are calculated by dividing the appropriate nominal series by the corresponding real series and multiplying by 100.

Disclosures

PLEASE NOTE: When you link to any of the websites displayed within this email, you are leaving this email and assume total responsibility and risk for your use of the website you are linking to. We make no representation as to the completeness or accuracy of any information provided at these websites.

A portion of this material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite, LLC, is not affiliated with the named representative, broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.

Index performance does not reflect the deduction of any fees and expenses, and if deducted, performance would be reduced. Indexes are unmanaged and investors are not able to invest directly into any index. Past performance cannot guarantee future results.

Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect again loss. In general, the bond market is volatile; bond prices rise when interest rates fall and vice versa. This effect is usually pronounced for longer-term securities. Any fixed-income security sold or redeemed prior to maturity may be subject to a substantial gain or loss. Vehicles that invest in lower-rated debt securities (commonly referred to as junk bonds or high-yield bonds) involve additional risks because of the lower credit quality of the securities in the portfolio. International investing involves special risks not present with U.S. investments due to factors such as increased volatility, currency fluctuation, and differences in auditing and other financial standards. These risks can be accentuated in emerging markets.

The statements provided herein are based solely on the opinions of the Advisor Group Research Team and are being provided for general information purposes only. Neither the information nor any opinion expressed constitutes an offer or a solicitation to buy or sell any securities or other financial instruments. Any opinions provided herein should not be relied upon for investment decisions and may differ from those of other departments or divisions of Advisor Group or its affiliates.

Certain information may be based on information received from sources the Advisor Group Research Team considers reliable; however, the accuracy and completeness of such information cannot be guaranteed. Certain statements contained herein may constitute “projections,” “forecasts” and other “forward-looking statements” which do not reflect actual results and are based primarily upon applying retroactively a hypothetical set of assumptions to certain historical financial information. Any opinions, projections, forecasts and forward-looking statements presented herein reflect the judgment of the Advisor Group Research Team only as of the date of this document and are subject to change without notice. Advisor Group has no obligation to provide updates or changes to these opinions, projections, forecasts and forward- looking statements. Advisor Group is not soliciting or recommending any action based on any information in this document.

Securities and investment advisory services are offered through the firms: FSC Securities Corporation, Royal Alliance Associates, Inc., SagePoint Financial, Inc., Triad Advisors, LLC, and Woodbury Financial Services, Inc., broker-dealers, registered investment advisers, and members of FINRA and SIPC. Securities are offered through Securities America, Inc., a broker-dealer and member of FINRA and SIPC. Advisory services are offered through Arbor Point Advisors, LLC, Ladenburg Thalmann Asset Management, Inc., Securities America Advisors, Inc., and Triad Hybrid Solutions, LLC, registered investment advisers. Advisory programs offered by FSC Securities Corporation, Royal Alliance Associates, Inc., SagePoint Financial, Inc., and Woodbury Financial Services, Inc., are sponsored by VISION2020 Wealth Management Corp., an affiliated registered investment adviser. Advisor Group, Inc. is an affiliate of these firms.

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