September and October come with a history of market volatility. We witnessed a reminder earlier this week when the Federal Bank reiterated concerns about continued inflation. The bank has been talking about inflation for the past several months, so it’s a bit surprising the markets reacted so sharply to Monday’s news release.
Economic projections continue to be very strong for 2022, creating optimism that in the longer term our markets have additional upside.
Hopefully the federal bank will carry through with raising interest rates, which we believe is necessary. Although our historically low interest rates are good for consumers, they are not conducive for long term economic growth.
EVERGRANDE: We experienced additional market volatility last week with concerns of Chinese real estate giant, Evergrande. Evergrande controls over $600b in global debt and is struggling to make its payments as the Chinese real estate bubble and its international lending has softened.
Not surprisingly, investors reacted severely to the potential default news and American markets corrected dramatically. Since then, the markets have recovered some of their losses, but the question remains how much more will Evergrande gyrations affect our markets. Over the weekend, China officials mandated Evergrande to continue its payments to American bond holders but did not require them to issue payments to its Chinese investors. We believe Chinese officials will eventually step in and protect some investors but probably not all.
Evergrande’s demise is still in the second inning, so truly no one knows how much this will affect our domestic markets. We will simply have to wait and see, but the market will likely have additional volatility until we are more certain of Evergrande’s outcome.
FEDERAL DEBT LIMIT: And we are closing in on another federal debt limit situation. You may remember these as nearly bi-annual events where congress waits until the last minute or sometimes after the deadline to extend the debt limit, currently $28 trillion dollars. Usually, the two political parties use this as negotiations on non-debt limit issues while the government experiences partial shutdowns. We expect additional market volatility until the debt limit is extended.
We believe once again that patient investors will be rewarded. But, if you have concerns about recent market volatility or any unrelated issues, please call us anytime.
Due to the delta variant and CDC guidelines, we will delay the holiday party until gathering of groups are recommended.
We trust you found this review to be educational and informative.
As always, we are honored and humbled you have given us the opportunity to serve as your financial advisors.
Eric & Kelly