Market Disruptions

Market Volatility

The markets are volatile…….obviously. This is a perpetual condition but is even more so now because of current circumstances.
 
There are three basic reasons why you’re seeing volatile swings. They have nothing to do with the Facebook news which itself has created uncertainty in the tech sector. 
 
The three transitions that are currently causing market disruptions are as follows:

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Tax policy

Tax rates are almost certain to go up. The question is who will be impacted and by how much. Corporate rates will likely be going up which will impact earnings for companies. The consequence of this will be less profitable corporations which could impact stock returns long-term. 
 
Additionally, targeted taxation appears to be headed for those of high-net worth or high incomes. We are watching this carefully and it may require an adjustment in investment strategy accordingly. Markets hate tax uncertainty and that’s what we have right now.

Inflation

There are concerns that inflation is running out of control as evidenced by prices at grocery stores, house prices, gas prices, etc. Yet, the 10-year treasury is still only pricing 1.5% interest that would suggest the bond market believes inflation is transitory. 

With conflicting information provided by the Federal Reserve regarding their intentions, markets are understandably nervous about the direction of interest-rate policy which could hurt corporate profitability and eat into discretionary spending by consumers.

Pandemic 

The “never-ending” disease drags on. It does appear we are turning the corner on the Delta virus but that remains to be seen. Vaccination rates continue to go up and those that are not vaccinated are building community immunity by becoming infected. 
 
How will the economy reopen once the virus starts to moderate? This is a question that is on the minds of investors as well as which companies will benefit from the final reopening of the economy likely sometime next year. There’s going to be a new normal, the question is what that new normal look like will and what companies will benefit from that new environment. It’s a topic we spend a lot of time researching.

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We will continue to debate, analyze, assess, and decide on how we will act based on these three transitory events. Will be sure to keep you posted as we make investment judgments and conclusions.

Disclosures:

Inflation is the rate at which the value of a currency is falling and, consequently, the general level of prices for goods and services is rising.