We have fielded several calls about market volatility and the 5% pull back in the market during September. Like many of you, recent market trends are disconcerting, but it is important to keep things in perspective. The S&P 500 is up 15.9% through the end of September, up 29.8% since September 30, 2020, and up 70% since March 31, 2020. Despite the tumultuous and unforeseen events of the past 18 months, the market continues to provide positive returns.
But the question still looms, “how much longer will it last?” There are a number of factors that are driving the market. There are also issues that are causing the volatility. Historically low bond yields are forcing investors to put new money into stocks. As long as bond yields remain low, this trend will continue. Despite challenges caused by the Delta variant of COVID, the economy continues to open up. I think this speaks to the resilient nature, and maybe the innate stubbornness, of the American people. On the other hand, political uncertainty, increasing energy prices, international tensions, and global supply chain issues are fueling instability. I don’t believe that any of these issues will subside any time soon.
So, where does this leave us? The Federal Reserve raised their 2022 growth projections from 3.3% to 3.8% in September. This supports our positive outlook on the stock market. We also believe that when the Fed ends its bond stimulus program, the long-term benefits will be positive. While we believe that there will continue to be market volatility, fundamental valuations remain positive and that bodes well for the stock market for the near future. We will continue to stay fully invested, and see no reason to reduce equity exposure at this time given the expected rate of return of stocks compared to bonds.