In this month’s video market update, Ron Rough discusses what happened in investment markets and what factors could impact returns in the second half of the year.
July Stock Market Update Transcript
This is Ron Rough with a market update video for July. I’m talking to you from southern Colorado, and if this part of the country is indicative of the rest of the country, then people certainly seem to be getting out and about and trying to return to normal. So we hope you’re enjoying the summer and able to get back out and enjoy family and friends.
It also seems like investors are certainly in an upbeat mood. If you look at this chart that I have here, you can see through the first half of the year what a strong period it was for stocks. Most of the major stock indexes were up over 10%. And when you think about the fact that stocks average about nine to ten percent per year, to be up that much in six months is pretty spectacular. So it’s been a great start to the year for stocks.
For bonds, not so much. You can see towards the bottom there the well-known bond index that measures high-quality bonds is actually negative for the year, although I will say that bonds have been improving over the past couple of months.
So let’s just take a step back. The chart you’re looking at here is a two-year chart of the S&P 500. So you can see the big drop we went through last year as the pandemic broke onto the scene and then the big recovery that stocks made as we started to make some progress. And what’s amazing is from those highs of February, stocks not only recoup the losses, the entire amount of the losses, as you can see over the last nine months, eight or nine months, we’ve actually gone up another 30%, which is phenomenal when you think about it because we still have unemployment that’s elevated. We still have people getting sick and even dying from the pandemic, but it’s been an amazing run.
And so I think the question that we have as investors is where to from here? We know why the market was able to move forward: progress on creating vaccines; understanding the coronavirus; the stimulus from the Federal Reserve, the liquidity they brought into the market, as well as the stimulus plans, too, now from Congress. And there’s a third brewing even now.
So we know why stocks were able to move as far as they have, but where to at this point? And I think there’s a number of factors that could present challenges as we look forward. Number one, inflation. Inflation has risen to the highest level in about eight years, and the Federal Reserve Chairman Powell has maintained that the inflation will be what he calls transitory which means by the end of this year, early next year, we should see those numbers taper down again. I’m not sure that all investors believe that, so that’s one thing the market’s going to have to digest.
Secondly, will this infrastructure bill actually pass? It’s been floating through Congress, but as we get closer and closer to the midterm elections next year, I’m not sure that both parties will actually be able to come together to pass an infrastructure bill, so we’ll see.
And then the third issue, of course, is this recent flare up by the so-called Delta variant of the Coronavirus. That seems to be spreading overseas and even in this country, and if that begins to impact the reopening, either in the U.S. or abroad, that could obviously give the market some indigestion.
I’m recording this video in mid-July. Markets do seem to be struggling a little bit here, so it wouldn’t surprise us that markets took a breather here. Seasonally, the late summer into early fall is a very weak period; the months of August and September are two of the weakest months of the year.
So we’ve had such a great run. It wouldn’t be surprising that markets take some time here, digest those gains, factor in these issues that are floating around. But as you know, we have our safety nets in place, and if we do get more than just a mild pull-back, something more serious, we have the safety nets in place across all the positions and we’ll be quick to execute those if necessary.
Well, that’s all the information I have for this time. Feel free to share this video if you know anyone that would be interested in the content. And if you have any questions, please call or email us. And until our next update, thank you for watching.