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Weekly Market Update for September 17 ,2021

by Jim Ulland

A week ago, the SP 500 was down each of the five days. That negative tone continued this week with the SP 500 down three out of five days. Headlines turned from optimistic at the start of the month to being negative. The negative narrative sounds something like this: the Delta variant is going to cause people to isolate and slow growth. Corporate profits will be under pressure from supply shortages and inflation pressures. The Fed will start reducing the amount of bonds they are buying which will put upward pressure on interest rates. The fiscal stimulus is ending. China’s largest property developer is on the verge of bankruptcy. Energy prices are higher. And, if that wasn’t enough, stock valuations are stretched.

The above is relatively true. Yet, when you take the issues one by one, the picture is far less gloomy. For instance, former FDA Commissioner Scott Gotlieb says that the Delta variant will soon be over. 75% of adults now have at least one shot and 10-15% of adults have had Covid and developed natural immunity. Corporate profits are under some pressure, but 20% profit growth is still expected for 2021.

Yes, the Fed is likely to reduce its bond buying, but this has been expected. There is a big foreign demand for US government bonds so less buying by the Fed may not have more than a small impact on interest rates. The fiscal stimulus is ending but some part of the $3.5T social program conglomerate may pass as might the $1.5T infrastructure package. The Chinese government may bailout its largest developer, but the company owes about $300B. This is the one issue that could surprise and cascade into a very serious problem. Crude oil prices are high, but some of this is driven by hurricane disruption. Finally, valuations are a bit stretched. This is no surprise and may result in a rather flat market going into the end of the year.

In just a few weeks, third quarter profits will start to be released. They will be strong. GDP is expected to average 6% in 2021 and 4% in 2022. There is plenty of recovery left. We think investors should be fully invested for now. The market may have a pause, which would be normal after such big gains last year and this year, but the pause will be short before the upward trend resumes. What could derail the market would be passage on the large tax increase proposals combined with increased deficit spending triggering the smoldering inflation.

For those who want to be more conservative than equities, we have seen large inflows into our fixed income strategy, run by Nat Beebe. The Intelligent Fixed Income (IFI) strategy continues to have record setting performance, netting about 5% so far this year. With cash and money markets paying nothing and corporate bonds only paying about 2%, you can see why IFI is popular. If you are concerned about a stock market correction, taking shelter in a lower risk strategy with meaningful yield is a good option.

The SP 500 and Nasdaq lost ground this week. The NASDAQ was off -0.47% and the SP 500 by -0.57%. Monday the SP 500 was +0.23, Tuesday -0.57%, Wednesday +0.85%, Thursday -0.16%, and Friday -0.91%.

Next week, attention may return to the open-to-all southern border. Thousands are flooding across from as far away as Haiti. The situation can not persist much longer. Another government problem is the debt ceiling. The Congress periodically raises the amount of bonds the government can issue, permitting several decades of deficit spending to continue. Congress has not yet agreed to raise this borrowing limit and the market may reflect this stress. At some point in October, Uncle Sam’s check book will hit zero. But, Congress can spend its weekend on this issue while we recommend everyone else enjoy the lingering beauty of this summer.

The information contained in this commentary is not investment advice for any person. It is presented only for informational purposes to assist in explaining factors that may have had an impact in the past or may have an impact in the future on client portfolios or composites. All expressions of opinion reflect the judgment of the firm on this date and are subject to change. Included information has been obtained from sources considered reliable, but we do not guarantee that the foregoing materials are accurate or complete. Investors should contact Ulland Investment Advisors for individualized information prior to deciding to participate in any portfolio or making any investment decision. Ulland Investment Advisors does not provide tax advice. All investors are strongly urged to consult with their tax advisors regarding any potential investment.

Performance quoted is past performance. Past performance is not indicative of future performance. There is always a possibility of loss. Current performance may be lower or higher than performance shown. Differences in performance versus the indices/funds may be attributable, in part, to differences in the asset make-up of the strategy vs. the indices/funds. Performance calculations are based on the reinvestment of dividends and gains unless these amounts were paid out to the client. Performance is subject to revision. See for important strategy disclosures.

This does not constitute a recommendation of any investment strategy or product for a particular investor. Investing involves risk; principal loss is possible. Investors should consider the investment objectives, risk, charges, and expenses of the strategy carefully before investing. This and other important information can be obtained by contacting Ulland Investment Advisors.


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