The Weekly Wire: So Far, September Is Living Up To Its Reputation

We are about halfway through what has historically been the roughest month of the year for the stock market, and so far, September is living up to its reputation with the S&P 500 off about 1.4% month to date, more than two times the average loss for the index in September of 0.50% over the past 70 years or so. Now, unless one is short the market, most investors prefer to see the market go up and not down, and we are very much in that camp; but as long-term investors, we appreciate the fact that down days – and sometimes down months – are part and parcel of investing, and we remember to put pullbacks in perspective and that markets go up much more than they go down.

With that said, near term, we can appreciate why markets are on the back foot; we are moving closer to an inflection point on monetary and fiscal policy and that creates uncertainty for investors (the debate around tax increases will be picking up over the coming weeks and the Fed has indicated it will begin tapering its securities purchase program this year); the Delta variant has weighed on economic growth (the latest GDPNow model estimate from The Federal Reserve Bank of Atlanta puts Q3 GDP growth at 3.7%, down from 5.1% growth on September 1, 2021); Q2 earnings season is in the books, so investors have fewer opportunities to hear from management teams on what is working well for their respective businesses (and what an earnings season it was, with 88% of companies reporting earnings better than Wall Street estimates), and - back to fiscal policy – there is growing concern Congress won’t lift the US debt ceiling before the US Treasury is expected to run out of cash, which could happen as soon as mid-October.

These are all legitimate points of concern; but we believe we are early in the current economic expansion and bull market, and both will continue to be supported by low interest rates, robust corporate and consumer balance sheets, and a strong housing market.