Wow! When you take a step back to think through the economy objectively, it is not hard to conclude, market volatility should be expected.
Volatility because of the uncertainly of how we truly land, from the impact of a truly unprecedented, inflationary period.
The recent monthly reports on inflation have been pointing to a slowing economy. This by itself, has been adding optimism to both the stock and bond markets because interest rates are expected to be lowered.
Now, suddenly, the concern, is something we have been mentioning in prior blogs. Will the economy slow more than anticipated? The answer to that question is illusive at this time, as should be expected. Not that you need reminding, however we witnessed the Federal Reserve move interest rates down to near zero and back up to 5.5%. Unanticipated consequences, both good and not so good, should be considered.
A couple weeks back, the economic data gave the stock market a reality check as 2 pieces of information reported lighter than expected. The ISM Manufacturing report came in with a reading of 46.8%, down from 48.5% in June. Readings below 50, can indicate a slowing manufacturing sector. In addition, the July jobs number was reported with 114,000 jobs created, well below forecast. The unemployment rate ticked up to 4.3%. This chilled the stock market.
Prior to both reports released, Fed Chair Powell announced no change in rates, however, did indicate a possible rate decrease at the September meeting. As the market was going downward last Friday, many on the news channels were saying Powell should have lowered rates. The current knee jerk consensus, there is now a 71% chance the Fed will lower rates by .50%, not .25% in September. I always say, be careful what you ask for!
Portfolio Positioning
A potential slowing economy, inflation, the Fed considering lowering rates, a presidential election, overseas issues has created significant volatility and should serve as a reminder.
Your portfolio needs to be positioned based on the specifics of YOUR situation. Keep in mind many of the people you may listen too on television, podcasts, newsletters and more, typically have bias based on their own self-interest.
A well allocated and diversified portfolio remains recommended!
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