The third quarter ended with all the major indexes down for the quarter, but only slightly. The Dow was down 1.59%, S&P 500 down 1.19%, and the Nasdaq down 0.44%. Most of the declines can be attributed to the following:
Concerns regarding Evergrande, the world’s most indebted property developer and most highly leveraged companies in China with a potential fallout of default.
- Covid-19 concerns over rising cases of the Delta variant (mostly among the nonvaccinated) causing overloaded medical facilities, even as overall Covid-19 cases have been receding from the summer’s high point.
- Added worries that new Covid-19 mutations could be forthcoming, and when booster vaccine doses will be approved for widespread use.
- Shipping logjams caused by not enough workers returning to the workforce are at the worst levels of the pandemic raising concerns to corporate sales, manufacturing production and inflation.
- The trickle-down effect of Covid-19 causing transitory or temporary inflation to linger, which directly impacts the consumer and economies overall.
- The potential government shut down and the political debate in Washington over spending.
- The Federal Reserve ending its bond-buying program and unknowns over when interest rates will rise.
Whew! That’s a lot to digest during one quarter. We need to step back from the present and look beyond the waves of worry. If you try to digest all the headwinds you may want to find someplace to hide. Warren Buffet commented on volatility: “Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.”
If you as the investor focus on the short-term you may miss out on long-term results. Investors cannot ignore the surrounding change of events; we need to see the big picture of how change applies today, tomorrow and the future. In other words, you can get caught up in the short-term and begin to make changes based on the most recent information or you can plan for the long-term knowing that there will be disruptions along the way.
As we look beyond the next few quarters towards 2022, we cannot predict when headwinds will turn positive, but we can control how our portfolios are structured to balance out some of the volatility. Looking forward, we know that the pandemic will be behind us, worker shortages will decline, business and political events/debates will remain, supply chains will realign themselves, and the couch ordered in January 2021 will eventually arrive. There is optimism ahead based on The Organization for Economic Cooperation and Development (OECD) research that is forecasting that every one of the 45 major world economies will be growing next year, with about half experiencing slower growth than in 2021.
What do we do now?
Volatility, no matter when it occurs, is always unsettling yet not historically unusual. We know it is difficult not to react to the headwinds. We believe that a well-diversified portfolio asset allocation, which matches your lifestyle needs and aligns with your risk parameters, will help avoid your having to make changes to your portfolio and allow you to stay the course.
The focus should be on long-term results, and not short-term volatility which can derail the best plan. Profit taking during up markets provides for the ongoing needs of our clients to maintain their lifestyle and balance in their portfolio. We have been taking profits since 2020 to avoid the need to react during downturns or volatility. When volatility subsides, you will look back and see that it was only a blip in your long-range strategic plan. We are confident that the waves of worry which can short circuit our emotions will pass as global economies emerge from the pandemic’s after-effects.
Thank you for staying the course even though it is difficult at times. We look forward to your questions or concerns. We are here for you no matter the direction. Enjoy the fall weather!
Thomas L. Menzel, CFP® Laura Biermann, CFP®President Vice President
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