Last week turned out well for the stock market considering how the week began. Investors digested some bad news for most of Monday, realized some of it wasn’t so bad on Tuesday, and then bought back what they sold for much of the rest of the week. This was a good example of how odd markets can sometimes behave, even amid an otherwise healthy economy.
What might also have helped sooth investor worries was updated data from the government on the financial health of the U.S. consumer. We make up 69% of GDP, a historic high point as of the second quarter, so the overall financial stability of households is incredibly important for the economy. The data is encouraging so I want to share some of it with you.
While the data comes from the Fed the charts and commentary below come from my research partners at Bespoke Investment Group. What’s interesting this time around versus the Great Recession, for example, is how well the average consumer is fairing right now. They have cash in the bank, low consumer debt, and haven’t gone crazy using their homes as ATMs. All opposite from where we were during the mid-2000’s.
One takeaway for investors is that a healthy consumer equals a healthy economy, at least for the 69% of businesses catering to them. And given that our government is potentially adding trillions in more spending to the system, it’s hard to imagine the economy and the markets turning really nasty anytime soon given this backdrop.
That doesn’t mean markets won’t be volatile along the way. They’re likely to be and are again today. This is especially true during this time when the unthinkable seems to happen with regularity. There are simply too many balls in the air, so to speak, for investors to juggle that they’ll be prone to react in unexpected ways. You don't have to sell and bury everything in a jar, just be prepared.
Continue reading below for the charts and brief commentary from Bespoke.
The Bureau of Labor Statistics has to be an interesting place to work. The almost 140-year-old government agency is responsible for gathering and disseminating data on jobs, wages and changes in the labor force, economic growth, and also for generating the various inflation numbers that drive so much of our financial life. Sounds like tons of fun, right?
The BLS also offers forecasts, and they just came out with a host of projections for this decade. While this isn’t meant to be a crystal ball, these projections shine a light on important trends in our economy. These trends impact your life and the lives of those around you in a variety of ways, so it’s important to pay attention to them.
You could probably guess many of the trends because most have been in place for some time. But as with so much else lately they’ve been accelerated since the pandemic started, in some cases dramatically. This research is done for every decade, so accounting for a tumultuous first year in 2020 must have been a challenge for the folks at the BLS.
I’m going to lay out a very brief summary of their projections below but am also providing links to a better summary from Bloomberg and then to the news release from the BLS. That way you can decide how deep you want to go if you’d like more information.
I usually write these posts on Mondays and on this particular Monday I’ll admit to being a little distracted. There are any number of issues going on right now, of course. You know them so I don’t have to bore you with a list. They’re natural and manmade, but for me today it’s the fires nearing South Lake Tahoe.
My family and I have spent tons of time in the area over many years, backpacking in Desolation Wilderness and enjoying frequent getaways to a family member’s home in Meyers. During the last several years while Sonoma County dealt with fires and smoke of it’s own, “Southshore” was our bugout spot, even though it was still smoky sometimes. It was our home-away-from-home. And I’ve run all over those hills while training for races. Too many great memories to count, so it’s hard to see the area at such risk.
Harder still are the property losses borne by multiple friends so far. For everyone’s sake I hope the brave folks of Cal Fire can pull a few miracles out of their hats in the coming days.
But that’s not what we’re here to talk about, right? This week I want to share some interesting information from my research partners at Bespoke Investment Group. They are truly awesome when it comes to research and putting things into perspective.
A good example of this is an update to their investor sentiment survey about bitcoin. I’m including sections of it below and a link to their site follows as well. The bottom line, I think, is that more investors are getting comfortable with the idea of digital assets. Their interest is still mostly tied to price action, of course, but overall this is another indicator that the asset class continues to mature.
Yesterday was nasty for the stock market and this followed a couple weeks of downward slide. That’s a rather abrupt shift from a long run of low volatility and solid returns since the pandemic lows. So what’s going on with the markets right now? Put simply, investors are in a bad mood after digesting too much bad news.
Even with all the technology, markets are still fundamentally human and are absolutely susceptible to mood swings. Some even suggest that the stock market has manic depressive tendencies. I’m inclined to agree. Start piling on bad news, even if it’s not all directly tied to the markets and economy, and the mood can go from ebullient to gloomy almost overnight. This might seem odd given what the market has shrugged off in the last 18 months, but nobody said it’s predictable.
Analyst outlook is solid, but right here right now the mood has turned sour. Individual investors had been growing increasingly bullish during the summer but turned sharply bearish as negative news began to mount.
The gut punch of Afghanistan policy. The delta variant, White House mandates, and fresh economic concerns. Growing consternation about Fed policy and the direction of interest rates. Congress debating more major spending initiatives and another major tax overhaul amid self-imposed tight deadlines. Another debt limit debate and U.S. default scare looming with all the corresponding rhetoric. And then news this past weekend that the second largest property developer in China could go bust, potentially leading to contagion. That sort of news out of China usually wouldn’t be such a big deal on a day that saw investors in a better mood. That wasn't yesterday, unfortunately.
While these topics are being covered at length by many, the most pressing issues for investors are tax changes, more spending, and the debt ceiling debate. Along these lines I wanted to share a recent podcast from Michael Townsend, Schwab’s rep in Washington. Michael is a level-headed non-partisan who reports on all things D.C.-related. In this episode he breaks these issues down and discusses his growing concern with how things are evolving in Congress.
Even though I admit to feeling the mood myself lately, I’m not overly concerned from an investment standpoint. We have to deal with risk daily and I’ve been reminding myself in recent months how lucky we’ve been to see the kinds of investment returns we’ve had with such low volatility. That can’t last forever and a spike in “vol” like this is good for markets. It shakes things up a bit, creates opportunities for rebalancing, and allows new money to be put to work at lower prices. I wish volatility wasn’t so on-again-off-again, but that’s been the case for years now. We play our hand with the cards we’re dealt, right?
As I write this Tuesday morning it’s good to see the futures markets bouncing a bit from yesterday’s close. It was also good to see “the smart money” start buying in the last 15 minutes or so of yesterday’s market, causing the Dow to close down about 614 points, which was an improvement from being down over 900 at one point. That brightened the mood a smidge, but not like a strong Turnaround Tuesday would. We’ll see how things play out in the coming days.
So many anecdotes, so little time. We’ve all heard stories about how high local housing prices have gotten, even amid five years in a row of the fire season new normal. While this trend has been present for some time and for a multitude of reasons, the pandemic really kicked prices into high gear.
People are on the move and looking for a reset. They’re moving out of cities and into the burbs and beyond. They’re moving closer to family in another state. They’re “cashing in” and retiring early and are maybe unsure of where to go next. Couple this with an abundance of downsizing cash and years of low interest rates that keeps money moving and you get our sometimes wild and unpredictable housing market. A home, with all its challenges, can be a refuge from all the uncertainty out there in the world, so it makes sense that many folks are trying to upgrade their spaces and places, so to speak.
It’s too early to tell the pandemic’s full impact on population change around the country. We see it ourselves and hear the stories, even though “official” data isn’t available yet. The 2020 Census only caught the first few months of the pandemic before most people started moving. But the data confirms a longer-term trend: people are leaving expensive major metro areas for less expensive suburbs, or even less expensive major metros. And the pandemic accelerated these trends. Per the census, people have tended to stay within their metro area, but anecdotally it seems like a growing number are going farther afield. But where is everyone going? Again, official data is sparse but other data paints an interesting picture. The following three rankings offer good examples of this.
The first is from U-Haul and shows the net-gain of one-way moving trucks entering each state during 2020. Tennessee saw the most move-ins while California was last after ranking 49th in 2019 – again the pandemic accelerated an existing trend. Texas, Florida, Ohio, and Arizona rounded out the top five.
Amid all that’s going on out there in the world something like rebalancing your portfolio can seem unimportant, even quaint. It’s certainly counterintuitive. But it’s also important because rebalancing keeps your strong performers from growing too large over time and increasing risk in your portfolio. That’s all well and good in theory but how do you do it? What should you choose to sell and when is the right time?
Ideally, you’ll have a threshold around each of your investments of, say, 20%. This means that if a stock fund has a target weighting of 10%, you’d look to trim (not sell entirely) it back once it grows beyond 12%. Having targets like this makes rebalancing easier because it’s something specific to compare to. It also makes the process less subjective and, hopefully, less scary.
But a lot of investors don’t have these targets, perhaps because they’re unsure of how to set them, or maybe because they don’t want to monitor them over time. Assuming this is the case, the next best way to rebalance is to look at the returns of each investment in your portfolio over a particular period. Look at what’s up most year-to-date, over the past 12 months, and perhaps since you bought it. These days brokerage firms have all this data and, if they don’t, you should reach out to them and ask for help with filling any holes.
If you looked at your numbers this week you’d likely see returns like this: