July Market UpdateAug 01, 2022
A heatwave and a return to mostly pre-pandemic life brought the markets a much-needed sigh of relief in the form of July's 9.1% increase in the S&P 500, the market's best month since 2020.
The market rallied on news that the Fed may cut back their interest rate hikes, and they are worried about throwing the economy into a long-term recession. The fed has also made mention of bringing the economy back into "balance."
However, recessionary signals continue to be mixed.
Though there is no doubt that consumers who lead the recovery in 2020 are cutting back discretionary spending, this does not mean that a recession is inevitable. It could be a response to the current economic uncertainty, or people just enjoying the first real summer since COVID, it could also be that there is a mismatch between supply and demand...most likely a combination of all the above.
My personal take is that people are in a wait-and-see mode. There are still a number of dominoes waiting to fall, and how they fall will really determine what happens long-term to the economy.
Of course, the economy and the markets are two separate things.
As retirees, our primary concern is the markets. When the markets do well, our savings can grow quickly, and we can convert more into usable income. When the economy does well, in theory, that helps the government collect more taxes, which helps social services...which we benefit from, but it may not help us put food on the table or a roof over our head. In fact, it may price us out of our current home.
In an ideal world, we would have both a strong economy and a strong market. What we have now is a bit of a tug-of-war. The market is starting to show some signs of stress, while some segments of the economy are still expanding.
For those who have been reading my updates for any length of time, you know that I firmly believe our economy is undergoing a radical shift. The pandemic has exposed significant fault lines, and around the world, countries are seeking to bring back critical manufacturing. These are not your grandfather's manufacturing jobs. These are high-tech, high-education jobs that will require a skilled labor force and continue to drive employment and wage pressure.
This means that the rules of the last 40-years...are systematically being unraveled. Energy independence, Onshoring (the reverse of offshoring) manufacturing, and cyber security all mean that the old rules of what investments will "win" or "lose" or how they work may not hold true for the future...and the people who will be hurt the most in this economic shift are those without the skills to compete, ie. low-income workers...who are already feeling the pain. How we as a country handle these growing pains will have a significant impact on our economy and the markets as a whole for generations.
As investors, as retirees, our primary concern needs to be how we navigate these turbulent waters and what our plan is for ensuring we don't get caught in the undertow.
As interest rates rise, old investment strategies that have not worked for 20+ years, may not be possible. And current strategies that have worked for the last 10-years may become too volatile.
For those who are close to or in retirement, I believe the best defense is an easy-to-implement investment strategy that is designed to help you minimize your risks while maximizing your returns and protecting your lifestyle and purchasing power.
To learn more about how to create the ideal retirement portfolio, check out my Investing 101 course here. I will also be discussing a lot more these changes a lot more in my upcoming blogs, and podcast episodes, so keep an eye out for them.
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