Stocks reach a fork in the road to recovery
As ugly a year as it has been for equity investors, conditions have improved in the last two months. The S&P 500 rallied 15% from its June 16 low and in doing so recaptured half its year-to-date losses. That leaves the U.S. stock market at a virtual crossroads, midway between its all-time high and its 2022 bottom. Given how much negativity was priced into equities earlier this summer, it was only a matter of time before the momentum reversed course. That said, there is very little consensus about where the market goes from here.
It’s not too early to harvest your 2022 stock losses
Paying taxes on investment gains is an unfortunate reality of successful investing. Writing a check to the IRS is never fun, but the truth is that a large tax bill typically means you booked a significant return from those investments. You only pay money if you make money. If paying capital gains taxes is an unpleasant side effect of strong performance, then harvesting losses is a silver lining during bear markets.
Recession is far from a worst-case scenario
The two most popular conversations in financial media, Fed policy and inflation, usually lead to the same question: Is the U.S. economy headed for a recession or not? All this talk about “soft landings,” whether or not the Fed can “thread the needle,” and any other tired clichés you may have heard in recent months are focused on that singular outcome.
Hard to have faith in the Fed’s new religion
The Fed has found a new religion. Seen the error of its ways. The most powerful man in the financial world, Jerome Powell, has come to realize that perhaps endless injections of monetary stimulus and artificially low interest rates might have some negative side effects after all. Like the highest inflation in 40 years. But Powell and the Fed governors have seen the light. From now on, their approach to monetary policy will be different. Strong asset returns are no longer a priority. Reining in inflation is all that matters.
Red-hot housing market brings challenges
An ugly first quarter for the stock market has many investors in search of a silver lining. Here’s one: The value of your house has never been higher! The latest numbers in the Case-Shiller U.S. Home Price Index suggest the average American home increased nearly 20% in the last 12 months. All 20 metropolitan areas saw annual gains of at least 11% with the biggest jumps occurring in Phoenix (33%), Tampa, Fla., (31%) and Miami (28%).
War, unfortunately, is nothing new for markets
The consequences of war are impossible to ignore. In only weeks since Russian President Vladimir Putin invaded Ukraine, the military conflict and a tidal wave of coordinated sanctions have washed away the normal structure of our global economy.
Rising rates do not dictate stock prices
All signs point toward March for the first increase to the Federal Reserve’s key interest rates that have been near zero for the last two years.
Moderate stock valuations reduce downside risk
The S&P 500 gained 27% in 2021, and yet most US stocks are cheaper today than they were a year ago.
Index Returns Hide Shifting Market Trends
U.S. equities are on pace to gain more than 20% in 2021, and it’s been one of the smoothest rides in recent memory.
Leading indicators support market strength
There is always an argument to be made that the stock market is overvalued. Here’s a sampling of the current menu for pessimists: Fed tapering is imminent, Stubbornly high inflation, Earnings growth has peaked, Delta variant prolonging the pandemic, Supply chain disruptions