August 2021 Economic Update

August 2021 Economic Update

Recently, I decided it was time for one of those purchases that you just hate to make – New tires.

For most of us, new tires are just one of those hard things to buy. Maybe the car drives a little better but no one says to you – Hey, really lovely tires you got there!” About the only thing that makes you FEEL good about buying tires is the thought that at least you are less likely to get stuck on the side of the road with a flat or hydroplane driving in the rain.

Good tires are essential, though, aren’t they? They are the only part of your car that is actually in contact with the ground; without them, you go nowhere fast. A bad tire can cause a severe accident or leave you stranded on the side of the road.

As I went about the plan to purchase these tires, I learned a couple of things. First, I had to wait over two weeks to get the tires because of a “tire shortage.” I also had to choose from only three possible tires because of the tire shortage. Next, I found out that this inflation is real!

Wow, have tire prices gone up since the last time I made this purchase! My dollar did not go nearly as far as it did just one year ago when I purchased tires for my other vehicle.

To get back to my point about this purchase – buying tires can be a lot like investing in companies that are not that exciting for most people. It just is not all that exciting to talk about the investment that protects you from downside risks and may cause your portfolio to underperform the growth stocks that it seems like everyone is talking about. But, for most people, those securities are a vital part of the mix.

• As masks reappear, will we see another 30% correction?

• Solid economic and earnings numbers

• Volatility Continues – Market expectations

As masks reappear, will we see another 30% correction?

We do not think another 30% correction is likely at this point. We will get into some numbers in the next section that we believe provide some evidence for this viewpoint from the economics side. From the healthcare side of things, I turned to the medical professionals in my life. I come from a family of nurses; my mother, sister, and wife are all nurses. (Nurses are amazing, by the way, if you don’t know one, you should get to know one and let them know you appreciate what they do.) The so-called Delta Variant concerns us. However, unlike when we first encountered the original virus, medical professionals now know better how to treat it. The public is aware of many ways to avoid it. Further, businesses are much better equipped to prevent the spread while continuing to operate. I am reminded of the immortal words of a past president, the only thing we have to fear is fear itself” Franklin D. Roosevelt. That fear, however, is what could prove me wrong if there is an overreaction to this new threat. Further, this Delta variant is even more easily spread than the original one, so only time will tell its true impact.

Solid Economic and Earnings Numbers:

This subject dovetails into the previous section or question. Yet, it also requires some counterintuitive explanation which I will attempt to provide.

First, the good news – Consumers, who account for most economic activity when you trace everything back, continue to sit on about $1.8 trillion in savings. While I understand the savings rates have risen, I have learned over the pasts 30 years in this business that we should never underestimate the power of the American consumer to do their job!

We are very much part of a global economy, and it is exciting to see economies around the world even where the “Delta variant” is more prevalent continuing to do well. PMI came in at 60.4 in the UK, and services continued to come in strong at 57.8. Looking at the Eurozone, we received a healthy manufacturing number of 62.6 in July, which remains strong albeit down slightly from June.

Here at home, our manufacturing numbers came in at 63.1 in July, which was another increase from June’s strong numbers of 62.1, and the services side of the economy also continues to show healthy numbers as well. These are just some of the indications we see that businesses have adapted to this new challenge. There also continues to be good news on the earnings front as companies continue to report stellar numbers.

Now the not-so-good news. This is where things get counterintuitive but not new to those that have watched the market for decades. I have said many times before that in the shorter term, the market moves early and in anticipation of what may come to pass. The near-term future concern now becomes “what happens when the proverbial punchbowl is removed from the party?” What happens if the FOMC “tapers” bond purchases or raises rates “too early”?

The markets are susceptible to any indication that government stimulus may be reduced even slightly and what impact that may have. This is where we could potentially experience an emotional “knee jerk” reaction to the downside, especially if the COVID resurgence continues.

Market Expectations:

We expect the next several months to continue to be volatile. Prudent investors will generally make sure they have some “boring securities” in their portfolios (those tires I spoke of earlier.) along with some downside protection to smooth out some of that short-term volatility. Investors with excess cash should continue to have opportunities to put some of that cash to work at attractive levels. We do believe that while some of the inflation we are seeing is transitory, others, particularly in the food and healthcare sectors, may persist. This inflation causes cash positions, in our opinion, to remain a liability to be maintained only as personally necessary for individual portfolios despite our near-term volatility expectations. The Jackson Hole financial symposium could provide for some gripping market action towards the end of August.

We ask that you please keep in mind that this report is our opinion from a broad perspective and is not personal investment advice. For individual advice and more information about some of the changes happening in the market and economy, you can schedule a no-cost call directly with me by CLICKING HERE. We are also happy to provide you with a copy of our Amazon best-selling book Build a Life, Not a Portfolio; A Guide to Your Financial Future Based on Your Values.  Additionally, you can tune into our weekly Building Your Life Podcast and search for topics of interest.

We continue to have one goal; to help you build a life you love supported by a portfolio that fits your specific needs.  

Guardian Rock Wealth Investment Mgmt. Inc.™™ (GRWIM) was incorporated on January 16th, 2002, in the state of IL.

Securities and investment advisory services are offered through GRWIM . GRWIM is a wholly-owned subsidiary of Guardian Rock™ LLC (GRW). None of these entities provide tax or legal advice.

Nothing in this communication should be construed as personal investment advice, and past performance is no guarantee of future results. Investing is not appropriate for everyone. There is a risk of loss associated with investing in the markets. No representation or implication is being made that using any methodology or system will generate profits or ensure freedom from losses. Please remember that investing carries risk. Guardian Rock Wealth™ LLC and its affiliates are fiduciary investment advisors. Please consult with another experienced, qualified investment advisor or us before making any investment decisions and/or attempting to implement any strategies and tactics we may discuss in any of our publications.