Although we might be in the lazy days of summer, this is not a normal year. People are traveling, booking vacations, getting married, and doing all the things they have put on hold for the last 18 months. Similarly, the economy isn't standing still. Instead, it’s expanding as folks go back to work and back to spending money. We have seen an economic expansion, but many people (and the markets) are still concerned about the unexpected. Here are three important questions about where we are now, and what we might see for the rest of 2021 into 2022.
Where are we now?
We are continuing to see an economic expansion following the vaccine rollout and return to somewhat normal times. This has meant decreasing unemployment and historically low interest rates.
Although some inflation pressures exist, the Federal Reserve has signaled that they do not intend to increase interest rates in the short term. We believe this decision will lead to continued positive equity market performance in the near term, although not without a certain level of volatility.
When will the economic expansion end?
We are not able to predict market movements with certainty. However, there are a number of economic indicators that can be useful in evaluating the potential risk of a recession or economic downturn. We monitor 12 of these variables (see the chart below), which have historically foreshadowed a looming recession. None of these 12 recession signals are signaling risk at this time. In fact, they are all indicating expansion.
What does this mean for the markets and for my portfolio?
This is potentially very good news for the markets. During this expansion, we continue to believe the equity market could grow for the balance of 2021 and into 2022.
However, bonds and fixed investments are experiencing greater challenges in this low rate environment. For this reason, we have developed strategies to address the potential interest rate risk exposure in portfolios that include bond investments.
We know how life can change and these changes may affect your portfolio. Our goal is to ensure that your objectives and life circumstances match so MFG can provide you with the best financial advice and planning. Although the markets and economic conditions are ever changing, our dedication to serving the financial needs of our clients endures.
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