A history of market crashes tends to linger in people’s memories. October is commonly known as one of the more volatile months of the year, but after opening with three days in which the market moved more than 1%, the equity markets mostly settled down and continued with the upward trajectory we’ve seen this year.
Let’s Look at Some Highlights
AN INFRASTRUCTURE DEAL IS MADE
Friday, November 5th, Congress passed a huge bi-partisan infrastructure deal costing 1.2 trillion dollars. It’s a big number that the Congressional Budget Office (CBO) estimates will add $256 billion to our deficit over the next ten years. Money will go towards bridges, roads, public transit, rail, broadband, airports, ports, waterways, electric vehicles, utilities, and environmental projects. In other words, it is an expansive piece of legislation.
Back in March, the initial Biden proposal for the infrastructure plan was roughly $2 trillion. While anything with a trillion in it is expensive by any measure, it’s worth pointing out again that what is proposed and what is passable are two entirely different things. This bill ended up getting a good amount of bi-partisan support, including 13 Republican House members and 19 Republican Senators who crossed lines to vote for the package. The plan is not good for our debt, but for better or worse, in the short term, spending is good for the markets.
AND INFLATION REMAINS A BIG STORY
This morning, the Labor Department published October’s consumer-price index. It came in higher than expectations at 6.2% compared to forecasts of an annual rate of 5.9%. That’s the largest increase since 1990. From gas stations and grocery stores to the housing market and boat dealerships, the increase in prices is clearly visible in our daily lives.
Obviously, from a financial perspective, increased costs of the goods we consume are not good for our wallets. That said, higher wages for workers and higher prices for asset holders are beneficial. Whether inflation sticks or it is largely transitory, is a debate yet to be resolved.
LEADING TO THE FED TAKING ACTION
In a highly anticipated move, The Fed announced that it will begin tapering the pace of its asset purchases in November. Jump back in time to March of 2020; the Covid panic was causing both the stock market and bond market to crash. The Fed stepped in to shore up credit markets by buying about $120 billion of bonds per month, essentially turning on the money faucet.
We are well past the point of panic. The Fed is not going to turn off the faucet completely, but it will slow its purchases by about $15 billion per month, with the purchases completely ending in 2022. This is the first steps towards fighting inflation. One thing The Fed has done well is communicating its intentions well ahead of time. This was a widely expected move, meaning it did not cause big waves in the markets for investors.
- The S&P 500 is up 26.24% on the year
- International index (MSCI EAFE) still trail the S&P 500, but are up 12.69% on the year
- Bonds are still negative, with the bond index (Bloomberg Aggregate Bond) down 0.85% on the year.
The Smart Investor
As we enter the holiday giving season, it’s a good idea to make sure you’re keeping as much of the market’s gifts this year as possible. This means tax planning. The strong market has likely pushed asset allocations over their limits, and the gains are not evenly across the board; there may be some winners and some losers that you can harvest to offset gains as you get your portfolio back to your preferred risk tolerance.There’s also still time for charitable giving. Planning your charitable giving strategies can be emotionally rewarding and can reduce your tax liability at the same time. Consider qualified charitable deductions that can count as your required minimum distribution or gift highly appreciated assets to a donor-advised fund or directly to a charity to get the most bang for your buck.
Of course, if you have any questions, we are here for you. Give us a call at 904-374-9098 or shoot us an e-mail to firstname.lastname@example.org
The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The Bloomberg Barclays US Aggregate Bond Index is a broad base, market capitalization-weighted bond market index representing intermediate-term investment-grade bonds traded in the United States and is used for measuring the performance of the US bond market. Indexes are unmanaged and do not incur management fees, costs, or expenses. It is not possible to invest directly in an index. The MSCI EAFE Index is a stock market index that is designed to measure the equity market performance of developed markets outside of the U.S. & Canada. It is maintained by MSCI Inc., a provider of investment decision support tools; the EAFE acronym stands for Europe, Australasia and Far East.
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