A lot going on in the world right now.
I thought this email would be about the $3.5 trillion budget deal or what to do with any last-minute tax credits that may be heading your way.
But then global markets jolted on fears of new viral variants.
Is the sky actually falling?
Could a big correction happen?
Before I give you my take on what’s going on, let me first ask:
How is your summer going? What’s exciting in your world right now?
Have you started looking at flights, cruises, or new destinations yet?
Make sure you are taking the time to do some things we haven’t been able to do for the last 18 months, as well as give your brain a much-needed break from the 24-hour media circus.
Now, on to the recent market volatility.
After hitting record highs in previous days, markets tumbled Monday, sending the Dow 700+ points lower. However, the following few days, markets rallied more than the 700 points we lost to give us a round trip and placed us right about where we were at the end of last week.
It stems mainly from fears of a COVID-19 resurgence caused by the delta variant that could derail the economic recovery.
Case numbers are rising globally, even in countries with high vaccination rates, and the surge could lead to a return to travel restrictions and business closures.
Could these market jitters cause a 10%+ correction?
Should we panic and freak out?
Here are a couple of reasons why:
Perhaps because of lower trading volume, summer months can bring higher volatility, making bad news shake the market harder. I started my career in New York City, and I can tell you that often our trading floor was very thinly staffed due to the senior people spending more time in their summer houses in the Hamptons or the Catskills.
We’ve had a pretty long winning streak, and corrections are part and parcel of a healthy market, especially when we’re near all-time highs. We’re just a few percentage points off as I write this.
New variants and higher case counts are certainly a headline threat. However, vaccination rates continue to rise, and experts ( at least the ones not clamoring for more air time) don’t think that we’ll see the devastating health outcomes we saw last year.
Could the delta variant cause the economy to slow down?
It’s hard to say at this point. However, the rosy projections about the economy have been based on a swift return to normal from the shortest recession in history.
If surging case counts cause a resumption of business and travel limits, we could see a hit, especially in recovery-dependent industries like airlines, cruises, and hotels. But, conversely, those FOGO (“Fear of Going Out”) stocks may take off again as they did last year. Most often, in markets, some sectors benefit when others get hurt.
Supply chain issues are still causing materials shortages, creating delivery delays of goods, and potentially triggering slowdowns in industries such as building and construction. For example, have you tried to order a new appliance recently? These supply chain issues are already problematic, so we don’t need any additional headwinds.
However, consumer spending is still robust, and the economy is in way better shape than it was last year. You still can’t buy a new bike or boat or pick-up truck because there aren’t many in inventory. Do you know how long it would take you to get a whole house generator installed if you ordered today? (The answer is the start of 2022 hurricane season)
Bottom line: we could see some market complications due to the delta variant and we’re likely to see more market volatility ahead, especially if financial and economic data disappoints.
If our strategy can be likened to a ship, we like the course we are currently on and the crew we’ve got on that ship. But, at the same time, we’re keeping a constant eye on the horizon and will be in touch with you if our strategy needs to change. Like boating in Florida in the summer, stock market conditions can change in a hurry, and we always want to be on the lookout for signs of those changes.
Have questions? Please reach out. I’m always here to help.