In what is typically known as the worst month of the year for stocks, September did not disappoint. Negative news coming out of China was the focus during the month. Headlines noted fear over Evergrande–a Chinese real estate investment holding company–potentially defaulting. The news weighed heavily on Chinese stocks Spillover effects trickled through markets worldwide, including here at home. In addition, the talks of a government shutdown (again), infrastructure bill challenges, government spending/debt ceiling disagreements, and a more hawkish Fed all contributed to the tone last month.
Increased volatility was on display throughout September, and many market participants expect it to continue through October – the most volatile month of the year historically. Here’s how the major U.S. stock indices performed in September: the S&P 500 shed 4.76%, the Nasdaq 100 lost 5.73%, while the Dow Jones Industrial Average decreased by 4.29%. While many market participants expect continued volatility, remember that volatility can create potential opportunities for some investors. These are the times to remember why we are engaged in long-term investing and long-term strategy.
The Federal Reserve announced that tapering of their asset purchases is in the cards but did not signal precisely when it would begin. The tapering could begin as soon as November. This asset purchase tapering is a gradual process that will most likely last until mid-2022. Fed projections are for an increase to the benchmark overnight lending rate over the next several years. The consensus is for the Fed Funds rate to increase from current levels (0% – 0.25%) to 1.75% by 2024. Half of the Federal Reserve members now see the first interest rate hike in 2022–but we do not know exactly when the first increase will be as of yet.
Bond Yields Rise Slightly
The Fed kept the overnight lending rate unchanged at their September meeting–just as the market expected. However, the Ten-year note yield ($TNX) and 30-year bond yield ($TYX) increased during September. Mortgage demand fell as 30-year mortgage rates rose to near 3.00%.
The heavily watched Consumer Price Index (CPI) showed that prices increased 0.4% from August to September, primarily driven by higher energy and food prices. Consumer prices are 5.4% higher versus a year ago, the highest since January 1991. The IMF’s recently released report on global economies expects to see U.S. inflation drop to a more typical 2% by the middle of 2022.
Supply chain issues have persisted, and perhaps you have noticed this during your routine shopping. Analysts are predicting continued supply chain issues through the holiday shopping season. This does not mean an expectation of completely bare shelves, but is a warning that specific or preferred items may not be in stock.
It’s hard to believe we are already counting down the final months of 2021. This also means it’s not too early to start planning for year-end deadlines. Consider reviewing your IRA, Roth IRA, 401(k), and HSA contributions. If you have an RMD and have not already taken it, our office will be reaching out to you soon to schedule yours.
Whether you have a simple investment question or you need help reviewing your entire financial picture, we are here to help. Our office welcomes the opportunity to work directly with your tax preparer or legal professional to help assist in your planning needs.