A confluence of supply chain bottlenecks, fears over the Chinese real estate sector, less accommodative monetary policy, and stickier inflation assumptions are all weighing on growth. As a result, GDP growth expectations have been marked down for the recent quarter. The Atlanta Fed’s tracking estimate for 3Q GDP has been steadily declining and now stands at 2.3% vs. 6.1% at the end of July.
However, the demand side of the economy remains strong, which would point to growth having been pushed out into the future due to the recent Delta-fueled surge in Covid cases and current supply chain constraints. As some of these issues begin to subside the base case of sustainable economic recovery remains viable.
The Stock Market
According to data from Yardeni Research September has historically been the worst month of the year for the market. Going back to 1928 the S&P 500 declines 51% of the time in the month of September and in the years when it does fall the average decline is 4.6%. The S&P lived up to its reputation again this year. After posting its 54th record high closing price for 2021 to begin the month, the large cap benchmark index went on to post a decline of 4.76% in September. The NASDAQ index fell slightly more, finishing down 5.27% while small-cap and foreign stocks were off by just under 3%.
While a down month is an unpleasant occurrence, especially when we’ve become somewhat accustomed to a trend that is “up and to the right” it’s important to keep things in context. The S&P 500 is still up nearly 16% so far in 2021, even with the recent pullback. Additionally, this is only the second time so far this year that we’ve seen a down month, and it brings the peak-to-trough drawdown to 5%. Over the past 41 calendar years, the market has averaged intra-year declines of 14.3%, so a 5% pullback is not unexpected and well within the range of what we would normally expect to see in any given year.
Markets have undoubtedly marked-up some of the fears investors are facing today. However, investing in the markets always has and always will involve facing whatever set of risks are pertinent at the moment. Some will matter, most will not. History remains on the side of remaining invested for the long-run and looking past whatever might seem ominous at any given moment in time.
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