THE NUMBERS
Sources: Index Returns: Morningstar Workstation. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. Three, five and ten year returns are annualized. Interest Rates: Federal Reserve, Mortgage Bankers Association.
MARKET HEAT MAP
The health of the economy is a key driver of long-term returns in the stock market. Below, we assess the key economic conditions that we believe are of particular importance to investors.
|
US ECONOMY |
||
|
CONSUMER HEALTH |
POSITIVE |
August retail sales surprised to the upside, increasing 0.7% month-over-month, indicating that the Delta variant has not had a material impact on the U.S. economy. |
|
CORPORATE EARNINGS |
POSITIVE |
S&P 500 Q2 sales and earnings grew an astonishing 25% and 89% respectively, when compared to the heavily depressed figures from Q2 2020. |
|
EMPLOYMENT |
POSITIVE |
The unemployment rate is down to 5.2%. In August, new job creation was disappointing, but jobless claims were as low as they have been since March 2020. |
|
INFLATION |
NEUTRAL |
CPI rose 5.3% year-over-year in August; CPI rose 5.4% in both June and July respectively. Fed Chairman Jay Powell is resolute that the high inflation is transitory and will decelerate as global supply chain bottlenecks resolve. Meanwhile, consumers expect CPI to be 5.2% over the next 12 months. |
|
FISCAL POLICY |
POSITIVE |
Congress came to a resolution to avoid the government shutdown through early December, but the debt ceiling still looms, which Treasury Secretary Yellen believes will be reached on October 18. Nonetheless, Democrats can adjust the debt ceiling without Republican support through budget reconciliation, so it seems likely a solution will be reached. |
|
MONETARY POLICY |
POSITIVE |
In recent communications, the Fed has indicated bond tapering may begin by the end of 2021 while rate hikes could commence by the end of 2022. Nonetheless, monetary policy remains relatively accommodative with rates at historical lows. |
|
GLOBAL CONSIDERATIONS |
||
|
GEOPOLITICAL RISKS |
NEUTRAL |
Although the Taliban’s control in Afghanistan is concerning, it is unlikely to have a meaningful economic impact. |
|
ECONOMIC RISKS |
NEUTRAL |
Supply chain disruptions caused by the Delta variant are hampering the economy, however, demand remains very strong. While supply bottlenecks will likely arise over time as new strains surface, the hold-ups appear primarily transitory and should ease progressively in a post-COVID world. |
The “Heat Map” is a subjective analysis based upon metrics that VNFA’s investment committee believes are important to financial markets and the economy. The “Heat Map” is designed for informational purposes only and is not intended for use as a basis for investment decisions.