By Patricia Kummer
The fourth quarter of the year begins soon. Investors are still on the edge of their seats concerned about potential tax law changes and any Federal Reserve policy that might spook the financial markets.
The economy is open -- or is it? Pandemic concerns continue, schools are open, but some have reverted back to remote learning. Many employees continue to work from home. No wonder it feels like we are riding an economic seesaw.
A deeper look boils down to a few distinct issues that affect investors: What will the Fed do? And will COVID-19 and its variants shut down the economy in a big way again?
Our Chief Economist, Bill Greiner, believes our current elevated inflation numbers are largely based on the partial reopening, supply chain issues and pent-up demand for goods and services. This will likely calm down over time, Greiner says. This is key for the Fed to decide whether inflation is enough of a sustainable threat to raise interest rates in the near term.
Last year, Federal Reserve Chairman Jerome Powell launched the framework to hopefully lead us back to more normal policy at the Jackson Hole Economic Symposium. That may be slightly derailed this year based on an uneven labor market and surge of the coronavirus Delta variant, per Bloomberg News.
It may be difficult for investors to be patient and watch for meaningful opportunities, rather than second-guessing how the remainder of the year will play out. The uncertainty in employment, education, inflation and interest rates may be here for a while.
The first eight months of the year produced above-average investment returns, so what lies in store for the last few months of the year? You could think of this in a baseball analogy, rounding second base and safe at third. Now, do you wait for someone else to hit the ball? Or do you steal home plate before the next out? Think of what you don't have control over and when to take action.
Significant unknowns remain with the delta variant and how this will affect the economy in the long run. Many businesses feel they are behind by a year and a half by now, and some employees currently plan to remain home until next January. The macroeconomic picture is murky with a burgeoning federal deficit and global ramifications from China in addition to the Fed story and inflation.¹
The positives that help balance out the negatives are that we have high labor productivity, a strong money supply and positive corporate earnings. Although we expect to see housing prices and corporate earnings start to slow, the first half of the year showed enough growth for an entire year.
Investors and their advisers should focus on the fundamentals, which show continued positive equity markets with monetary policy, GDP growth and earnings all improving. However, every good financial plan should have flexibility for when those unknowns become reality.
Make sure your plan is in order as we start the final quarter of a very unusual year. Check and see if you should adjust your taxable income, 401(k) contributions or realize capital gains or losses before year-end. There are a lot of opportunities to take better control of your finances before there could be changes next year, in interest rates, inflation or tax policy.
Patricia Kummer has been a Certified Financial Planner professional and a fiduciary for over 35 years and is Managing Director for Mariner Wealth Advisors, an SEC Registered Investment Adviser.