TempesterSeptember 15, 2021 -
Categorized in: IAG News
Historically, September hosts more market tempests than any other month. While history is never a perfect predictor of what will unfold in the future, the conditions this Tempester seem more likely than normal to create some tempests.
Over the next few weeks the key ingredients for shrill headlines, scary games of political chicken, and market-moving madness start coming together:
- The federal government’s budget year ends on September 30. Congress will likely need to pass short-term funding measures to keep the doors open.
- The federal government’s debt limit was exceeded in July, and the U.S. Treasury may be unable to pay all of the bills in early October. Congress will need to resuspend or increase the debt limit soon.
- Moderate Democratic members in the U.S. House of Representatives received an assurance from their leadership that a bipartisan infrastructure bill that has already passed the U.S. Senate would be voted on in the House by September 27.
- Progressive Democratic members in the U.S. House and U.S. Senate are piecing together a $3,500,000,000,000 spending package that will raise taxes to partially offset the spending increases. Their goal is to pass it as soon as possible with a very narrow majority in each chamber.
The only certainty in this mess is that it will be a mess, and, of course, create plenty of finger pointing and political posturing.
The financial markets prefer certainty over uncertainty, and this large number of important variables with unknown outcomes is likely to make some traders nervous. When traders get nervous, they sell – making more traders nervous. This can evolve into a trader selling cycle until confidence returns.
What three easy steps do we (investors) take when we suspect that traders may be ready to cause some downside Tempester volatility?
First, we stick to our long-term investment risk budget that is part of our financial plan. Second, if the stock market starts to go down, we stick to our long-term risk budget that is part of our financial plan. Third, if the stock market goes down a significant amount, we stick to our long-term risk budget that is part of our financial plan.
While it is tempting to look at the future and see reasons to fear, believing in the illusion that we can correctly time when to jump out of the stock market and – even more ridiculously – back into the stock market is mental malpractice. It cannot be done with any level of consistency because the future is unpredictable.
If the last half of Tempester lives up to its name this year, close your eyes and ears to the siren song of short-term traders and talking heads who tempt you with harmful advice packaged as “wisdom.” Instead, find confidence in the financial plan and investment risk budget you already have in place before any tempests begin.
Quote of the week: Donald Rumsfeld: “I would not say that the future is necessarily less predictable than the past. I think the past was not predictable when it started.”
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Any opinions are those of IAG and not necessarily those of LPL Financial. Expressions of opinion are as of this date and are subject to change without notice. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. No strategy assures success or protects against loss. Investing involves risk including loss of principal.
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