Volatility has returned to the stock market. Major indexes dropped 10% or more before stabilizing. Several items are coming to a head, all of which, I believe, will increase market swings, positive and negative as news develops:
- A stimulus package to follow up on the Care Act passed in April has stalled in Congress. The Care Act was designed to assist small business and those out of work for 3 months or until the end of July. If a Care Act II is not approved, I expect lay offs and bankruptcies to increase real soon. News that the Democrats and Republicans in the House of Representatives have resumed talks on such a bill may be one reason stocks rebounded in the later part of this week.
- The Federal Reserve announced that the Fed Funds Rate will remain near zero until 2023 and that "more than normal" inflation will be tolerated in order to stimulate the economy. The U.S., along with many other developed countries, are inviting inflation with low interest rates and spending plans. The consensus appears to be that inflation and devaluation of currency is favorable to deflation, a situation where everything loses value in the face of a slower economy and less demand for products. I think the Fed will eventually get their way and inflation will emerge.
- The Presidential election is just over one month away. Need I say more? I am aware that emergency response agencies in California are focusing less on Covid-19 and even the fires that have devastated parts of the state. Their new concern is civil unrest following November 3rd. Regardless of the results, we could be in for more social discord, particularly if the election is contested.
In light of this, I share the following from Chris Davis of Davis Funds:
In the heat of today's polarized climate, It is worth bearing in mind two deep truths. First, regardless of economic status, gender, race, or sexual orientation, few would disagree that it is better to be living today than 50 years ago. Second, the fact that there has been enormous long-term progress over the last 50 years does not mean that there is not a long way to go. Based on history, it may be reasonable to conclude that today's discontent will lead to continued progress on this long journey.
Have a wonderful week-end and may kindness rule your day.
Joe Tomkiewicz MS, CFPr
Sierra Financial Advisory