As we saw in the first last quarter, the market experienced some big swings and then bounced right back to previous levels. At the end of the second quarter, we saw the short term Brexit response (a two-day 5+% drop), was followed by a bounce back to pre-Brexit levels just one week later. Since then the S&P 500 has risen steadily, up close to 7% for the year.
Interestingly friends and clients have said that the market is doing poorly. Rather than focusing on actual returns, they are reacting to market volatility, something that we see continuing until there is more certainty regarding interest rates, the direction of the economy and the presidential election.
With regard to interest rates, they are holding relatively steady at historically low levels, slightly above 1.5% right now for the 10-year Treasury bond. With inflation mild globally, the overall view is that the Fed and central banks in other developed countries will remain highly accommodative.
Central bank accommodation along with energy prices stabilizing should help GDP and contribute to improved corporate earnings. The risk of any near-term recession appears minimal.
Some Quick Takeaways:
- Short-term swings drive fear and unnecessary trading; long-term returns drive future wealth creation.
- Recession risk in the U.S. is limited as central banks remain accommodative.
- History has shown that whichever party ends up in the White House does not have a big impact on the market. Don’t let the news stations get you thinking otherwise.