Market Update

Well, we’ve climbed steadily back up, so where does the market goes from here? This is a question I have been getting a lot recently.

We witnessed a huge decline in the stock market last March, and a record-breaking recovery back from that downturn. World markets are again at all-time highs, which understandably will raise questions about how it can possibly continue. When is the next crash?

I have been listening to top portfolio managers, economists, and market strategists speak about the past year, and the outlook moving forward. The outlook is still very bullish on stocks. There has been a shift in the markets from the “growth” outlook that we’ve witnessed explode over the last number of years, to “value” style stocks. And the professional stock pickers are finding a ton of opportunity in these companies.

Bonds on the other hand, which are traditionally a safer place to invest than the stock market, are less likely to do well over the next number of years. Bonds are tied to interest rates, and if/when interest rates start to rise, bond values will usually drop. While bonds do still have a place in a diversified portfolio, and have contributed to steady returns in recent years, they will likely be more fickle over the next year or so as the interest rates begin to creep back up.  Bond managers are still finding good quality opportunities, but they are looking at more short-term strategies so they can easily reinvest at higher yields when interest rates start ticking upwards.

Inflation is another discussion top of mind in the investment world currently. Inflation is the increase of cost of living, and something we have not seen in recent years to a large degree. Given the economic environment we find ourselves in due to the closure of many countries’ economies across the globe, inflation is inevitable once things start opening back up. Usually when inflation happens, demand decreases since prices are going up which forces the value of our dollar down. However, given all the pent-up demand across many industries due to lockdowns, when things open up, even if it pushes inflation, the demand will be so great, that it will not likely negatively impact consumers as significantly as it might have in the past. People are ready to spend their savings.

How does inflation impact your investments? Well, if inflation decreases purchasing power, then it makes sense that stock prices might decrease as well. The good news is that most of our portfolio managers generally share the same consensus that while inflation may impact the markets very short-term by a relatively small degree (because it’s expected), they are making changes to their portfolios to those opportunities I mentioned above while keeping in mind that company’s inflation risk.

This is a great reminder why we hire professional money managers to make these decisions on what stocks to buy and when, and how to construct the portfolios given whatever economic environment we find ourselves in.

Given we are still navigating the pandemic and investors are emotional beings, the markets may be bumpy, but there are no indications that a significant drop in the markets is on the horizon. Staying the course, ensuring your investments are suitable and reasonable for your stage of life, and having a mix of investment styles within your portfolio is key.