Market Minutes from the Boardroom

Contributors: Colby McFadden, Justin Singletary, and Patrick Morehead

Are you Excited or Concerned?

Should I be excited
or concerned? 

Has been a big question many of our clients and colleagues have been asking us the last few weeks and one we aim to answer in this month's Minutes from the Boardroom. 

To help frame that question a bit better, it’s important to note that at the time of this writing many investment markets are at or near all-time highs, and for the past year, investors that didn't get spooked by the pandemic have been partying like it’s 1999 all over again.  That’s right, believe it or not, just 12 months after hoarding toilet paper and with everyone getting vaxed and masked the markets and economy have been running hotter than Olympic Gold Medalist Sydney McLaughlin or for readers that prefer some masculinity - Olympic Gold Medalist Caleb Dressel. (Remember the Olympics just ended?  Did you already forget? I did.)

However, not everything in the world is lilies, roses, and Gold Medals, right?  

Lurking in the background are the growing concerns of the Covid Delta variant, the next possible Covid variant - whatever that may be, mask mandates, rising inflation, looming tax hikes, devaluing currencies, and an aggressive sell-off in Chinese markets (not to mention an aggressive China that appears to want to dethrone the U.S. and complete its commitment to gobble up Taiwan) along with the Taliban taking back control of Afghanistan.

All this while equity markets make new all-time highs and appear to be at a possible inflection point of resistance, placing markets in a position to either correct lower to work off some of the current excess or possibly freight train higher in a parabolic blow off that if it were to happen will most likely be memorialized in financial market history books for years and possibly generations to come.

So, should you be excited or concerned?
Perhaps both, and it’s important to remind ourselves that as much as we want to control life or financial markets, the reality is we can only take one step at a time and make our decisions based on the balance of evidence we have at that time as we step forward.  So, let’s dig into the month of August to see how the month may fit within the puzzle pieces of near and long-term market cycles as we all take our next steps forward together.

Market Review

What’s happened?

What may be next?

Is August 2021 an inflection month investors will remember?

From the view of this market observer, August feels like an inflection month in many ways.  

On the covid front, we have shifted from the jubilation many felt as the prospects of the vaccine providing immunity and allowing the economy to re-open, to concerns that the vaccine may not be a pass to immunity but more like a fancy flu shot that still leaves open doors of risk causing many people to think twice about planned travel and future activities until more is understood.

On the economic front, employment has continued to improve. There are still reports of labor shortages in certain regions which seems to be in a down-trending trajectory as federal unemployment benefits expire in the remaining states that still have such benefits. Landlords look to be squared off to have a battle with the Biden administration over the eviction and foreclosure moratorium and August may have marked a change in consumer sentiment as numbers were surprisingly soft - is it possible all the free money has been spent and additional debt has been accrued, sowing the seeds of a future consumer crunch?  

Interest rates have continued to trend lower (we are in the camp that this continues) in the face of everyone saying they would go higher. The U.S. Dollar has gained strength (something we think continues as well) as every newsletter and subscription writer has been telling you The Dollar is doomed and blah, blah blah. All-in-all, even though there has been traditional market noise and walls of worry, there has been stability in the major market cycles during August allowing liquidity to be ample for markets to operate smoothly.

On the technical side of equity markets, breadth continues to deteriorate which means fewer stocks seem to be pushing the indexes higher.  Case in point - much of the recent move higher in the SP500 index appears to be from a parabolic move happening in good ole Mr. Softy, Microsoft. In addition to the deterioration in breadth, there appears to be some divergent behavior developing in markets as the large-cap indexes (like the SP500) are making new all-time highs while broader risk benchmarks like the Russell 2000 and High Yield Bond indexes are well below their previous all-time highs.  Possible early signs of market weakness?  We shall see.

Chart of the Month - Breadth vs. SP500 Price Source: August 2021

A look at what divergence may look like:

Looking forward, markets seem poised for a tale of two scenarios.  1. We see a run-of-the-mill correction in equity markets to work off some of the current divergence and excesses. Then, possibly after that correction, one more run to new all-time highs in the SP500, let’s say near the 4700 level. Or…..2. Risk assets (think equities and crypto) get squeezed out of this divergence into making a parabolic move higher in a classic blow-off type of fashion.  

Both scenarios offer very different opportunities and risks depending on where you may be in your financial life.  Needless to say, we think this is a crucial time for investors to be evaluating their risks and time frames for major life events like retirement or needing your money for healthcare as you age.  Contact us today if you are 5 -7 years from a major life milestone that you need to make sure you are financially ready for.

The Retirement Red Zone

What’s the retirement red zone?  It’s an ultra-sensitive time period within your financial life when your personal “long term” isn’t the same as Wall Street's definition of long term.  

It’s a stretch of time that saddles the 5 years before and the 5 years after you retire.  This is a crucial time when a mistake in the risk management of your retirement nest egg can make the difference between having a retirement in style or retirement of trepidation.

According to a recent article in CNBC many 401(k)’s and retirement accounts are experiencing record values with the overall average 401(k) balance hitting $129,300 as of June 30, up 24% from the same time last year. With an estimated 10,000 baby boomers retiring every day, the “retirement red zone” is positioned to be a big influence in retail investing and financial market trends over the next few years as many retirement investors shift from a mode of growth and accumulation to a mode of preservation and income.  

For these reasons and more, is why we specialize in providing prudent strategic and tactical guidance to investors that find themselves in this dynamic and important time frame of life.

A common question and concern we often hear from individuals that find themselves in the Red Zone has been - Now that I have invested a lifetime saving and investing for the future, how do I avoid falling into the trap of underperformance that so many average Joe investors fall into? How do I responsibly transition the focus of my investment goals from growing as much as I can to growing while preserving and creating income? 

Great question considering the average Investor underperformed the S&P500 by 55% for the period Jan. 2016 to Dec. 2019. (Dalbar 2020) We estimate 2020 and 2021 will be similar.

And with the potential of future inflation and taxes combined with proposed tax changes to retirement plans by the Biden administration, how does an investor optimize their opportunities while limiting the risks related to investing while in the Red Zone?

“Everyone has a plan until they get punched in the face” - Mike Tyson

As cliche as it sounds, the answer to being successful in the Red Zone is having a plan.  And not just a plan of diversification but a “Plan of Attentiveness''.  A plan of attentiveness is a process of reviewing, benchmarking, applying strategy and tactics based on market cycles, and asking forward-looking questions to get ahead of the next investment trend.

If you would like to experience how this is done in real-time join us for our upcoming Live In-Person and Streaming event on September 9th at 1:00 pm.  

In this event, which is usually only for Clients and VIPs, we share with you the exact process we do for our clients each and every quarter of the year so they stay informed and engaged with their investment portfolios with minimal effort.

Want a better way to maximize your retirement income?

A comprehensive financial strategy can help you make smart investment decisions.

Schedule a Free Consult

The Next Investment Wave

When it comes to the next 3 to 6 months for broader financial markets (think SP500, Dow Jones, Etc), as mentioned earlier we believe market watchers should expect to see an increase in volatility along with an increase in market noise within the news cycle. Make sure to get your investment allocation and diversification reviewed so you are prepared for what may be in front of us as investors.  

For those of you that like to catch the next investment theme or wave before everyone else is talking about it, The Next Investment Wave is for you.  Here, we break down some of the sectors and industries we have identified as possibly being in long-term growth cycles that investors may want to pay extra attention to for potential “alpha” opportunities, assuming the risks associated are appropriate.

In this month's The Next Investment Wave, we are bringing to your attention the world of Agricultural Technology.  Yes, you read that right.  And, no, not John Deere.  We are talking much bigger than your daddy's tractor.  We are talking about the vast realm of technology surrounding the production of agriculture and food. 

Similar to many things in the last 10 years, the world of Ag Tech is experiencing some amazing advances in technologies that are designed to solve one of the biggest problems humans face in the future.  A lack of food and water.

See, as a result of everyone from the baby boomers down to the millennials having 2.8 children after listening to Marvin Gaye and wearing yoga pants, there has been a big increase in baby-making which leads to too many people and not enough food and water.  And technology may be here to save the day, so baby-making can continue, for now.  

From drones that can identify crop infestations to artificial intelligence tracking clouds and weather, to gene modification to water purification, there is no end to how the old world of agriculture has collided with the new world of technology to create efficiencies that solve real-world problems facing all developed and developing nations.  

With the Biden administration and the EU backing a social groundswell movement surrounding the topics of the environment, climate change, and the economy we suspect a long-term secular trend could be in the very early phases.  A trend that could possibly be poised for take-off and fueled by liquidity and funding from both the government and private sector as food inflation appears to be a future topic of discussion that will inevitably need additional solutions while opening up more potential opportunities for investors interested in catching the next investment wave in the world of Agriculture Technology.

If you would like to get a sneak peek of what we are watching or would like to learn more about the Ag Tech sector check out our resource page for some helpful articles and resources:

Until next month stay healthy and take care and we hope to see you at our event on September 9th!!

Want market updates and insights
directly in your inbox?

Subscribe to get exclusive access!