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Q4 2021: Market Headwinds and Tailwinds

  • Souders Financial Group

We hope that this message finds you well and that you enjoyed the summer. As we start the fourth quarter of 2021, we wanted to provide some brief commentary on the state of the stock market and the economy.

This year, there have been topics as far ranging as the presidential transition to the delta variant and Afghanistan. Yet, the S&P 500 gained nearly 16% with dividends this year through the end of the third quarter. The markets repeatedly show that those who stay disciplined and look past the daily headlines are often rewarded, regardless of how quickly market sentiment turns.

Today, the big issues that weigh on markets can seem nearly insurmountable, as they often do. The nature of the short recession last year, which only lasted two months, and the swift recovery have been unlike any cycle in history. This has made it difficult to measure and interpret traditional economic data such as inflation and growth rates. Even when the data return to pre-pandemic levels, the year-over-year percentage changes can be extraordinarily large.

On top of measurement and interpretation issues, there have also been real structural challenges, most notably around global supply chains. Much of this is rooted in the on-going disruptions in manufacturing and shipping that have affected industries from semiconductors to construction materials. While it's reasonable to expect that these issues will be resolved, trying to predict the exact timing is difficult if not impossible. The computer chip shortage is still a major problem while lumber prices have already fallen significantly.

These problems not only affect the performance of companies, stocks and sectors, but they are also an input into monetary and fiscal policies. One of the Fed's key mandates is to keep prices stable which will require reducing asset purchases and eventually hiking rates. At the same time, Congress and the White House are actively pursuing new spending measures, which will also impact tax policy. While these headlines naturally garner investor attention, seasoned investors have been through many such periods over the past two decades. In almost all cases, the best course of action was to stick to appropriately-tailored investment plans.

Perhaps then the biggest shift in markets over the past several weeks is that interest rates have begun to rise after pausing for two quarters. This has put downward pressure on tech-related sectors, counter-balancing improvements in areas such as energy and financials which have benefited from these trends over the past year. Not only will interest rates likely climb further, but investors should continue to expect higher levels of volatility. Only at the end of the third quarter did the S&P 500 experience its first 5% pullback for the year. Such short-term pullbacks are normal for markets and investors should be comfortable with greater uncertainty in the months to come.

It's important to emphasize that this is all occurring against a backdrop of a strong economy and robust corporate profits - factors that do not depend on how investors feel. Ultimately, long-term investors ought to position themselves for years and decades, not days, weeks or months. By most measures, we are still early in the business cycle despite the shared feeling that the pandemic has lasted a lifetime already. Achieving financial goals requires true dedication and discipline, regardless of what markets are concerned about in the short run.

As always, do not hesitate to reach out to your advisor with any questions or concerns as it relates to your financial situation.

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What Is Up with Inflation?

  • Souders Financial Group

If you have been tuning into financial news or reading the Wall Street Journal lately, you may have noticed the word “inflation” appearing quite often in the past few months. The long period of low interest rates and the influx of stimulus has investors anticipating that inflation may be inevitable. We hope to help you understand what inflation is and how it affects you and your financial plan:

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Market Update: 6/1/2020

  • Souders Financial Group

After a sharp rebound in April, off of the March lows, May continued to show strength in a stock market rally as the S&P 500 was up 4.5% month over month. May's rally was largely fueled by the positive news of progressing vaccine trials and hopes for a fast-tracked vaccine, which could be available by the end of 2020 in a best-case scenario. This news coupled with the reopening of many states' economies fueled optimism that the US economy is bottoming and starting recover from a deep decline in economic activity.

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Market Update: 10/1/2020

  • Souders Financial Group

The third quarter of 2020 continued right where the second quarter left off with a continued upswing in the S&P 500 in both July (+5.51%) and August (+7.01%). The market's largest headline included a 4-1 stock split by Apple (AAPL) and a continued rally in the technology sector. September was a month riddled with volatility and finished down (-3.9%) as the market saw a mixture of Coronavirus-related headlines and suspected profit taking causing some rather large down days. The S&P 500 finished up 8.5% for the quarter and is up 4.1% YTD.

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CARES Act: What is it and how might it impact you?

  • Souders Financial Group

Last week, the United States Congress passed, and President Trump signed, the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law. The CARES Act is a $2 Trillion emergency fiscal stimulus package that aims to bridge and ease the effects of the Coronavirus on the US Economy. The bill has provisions for loans, payments and tax credits aimed at helping individuals, businesses, and municipalities meet short-term cashflow needs. While the bill is hundreds of pages in length, here are a few things we believe our clients should be aware of.

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A Lesson From History

  • Souders Financial Group

With COVID-19 cases surging in some states and uncertainty abound, sometimes it can be best to take a look at the past to guide investor's moving forward. Throughout history, there have always been reasons to not invest. The chart below includes a World War, the Great Depression, multiple other expensive and traumatic military conflicts, a dozen or so recessions and the current global pandemic. However, $1,000 invested in the S&P 500 in 1928 would be worth $169,428 today which would give an investor an annualized 6% compound return before dividends .

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Why the Economy is Stable Despite the Public Health Emergency

  • Souders Financial Group

The stock market continues to react to coronavirus headlines on a daily basis - with both negative and positive market swings. As the death toll rises (primarily in China at the moment), the fact that this is a human tragedy and not just an economic or financial one should not be diminished.

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For informational purposes only. Not intended as legal, tax, or investment advice, or a recommendation of any particular security or strategy. Please contact your legal or tax professional for more information regarding your individual circumstances. Information prepared from third-party sources is believed to be reliable though its accuracy is not guaranteed. Opinions expressed in the above commentary reflect subjective judgments of the author based on conditions at the time of writing and are subject to change without notice. Past performance is not indicative of future results. For more information about Souders Financial Advisors, including our Form ADV Part 2A Brochure, please visit https://adviserinfo.sec.gov or contact us at 513-598-2400.