Investment Advisor - Archive

Wrestling with the unknown (+ uplifting news)

Investment Advisor · Dec 3, 2021 ·

Let’s talk about omicron.

(If you’d rather not, scroll right down to the P.S. for something beautiful.)

Omicron, unsurprisingly markets reacted badly

Since the first known cases of COVID-19 were detected in China, we’ve seen a number of notable mutations as the virus moved across the world. Some, like beta and gamma, didn’t end up being a huge deal.¹

Others, like delta, spread rapidly and caused new waves of infection.

Now we have another variant on our hands: omicron. And it could be a serious one.

Unsurprisingly, markets reacted badly to the news last Friday and gave us our worst market day for the year.²

Why? The short trading day and lack of overall volume over the holiday break gave the selling pressure greater impact on the market than it might have had under normal conditions.

We’ve seen that pattern before and it’s worth keeping in your back pocket: bad news over a holiday often leads to outsized market reactions.

Is omicron dangerous?

Well, we don’t know yet. And we won’t know for several weeks until scientists can determine how the variant will respond to current vaccines and treatments.

If it’s more virulent, it could have delta-level impacts on travel, hospitality, and other parts of the economy.

It could also turn out to be a tiny bump in the road.

We just don’t know yet.

The market is laser-focused on omicron news so we can expect rocky times until the uncertainty clears (or something else takes over the chatter).

So, what can we do?

Rather than try to predict the unknowable or speculate wildly without enough information, let’s do something else instead.

Let’s take a deep breath, step back, and focus on some ground truths:

Everyone is tired of this pandemic and ready to move on. But the pandemic’s not done yet.

We will continue to see COVID-19 variants. Most will fade into the background. Some will be more serious.

New vaccines and treatments are continually being developed and released.

We have been adapting to the virus for nearly two years and we’ll continue to get better at it.

Life is a gift and every day is extraordinary in some way. Let’s cherish that.

Hopefully, we’ll look back in a few months and forget omicron ever hit the headlines.

Until then, we wait, we watch, and we count our blessings.

I’ll be in touch when there’s more to share.

Be well,

Goran Ognjenovic
Independent Investment Advisors
(971) 350-8068
www.independentadvisorsnw.com

P.S. Can I share something uplifting with you? A retired dad (who already fostered 30 kids) adopted five young siblings so they could grow up together.³ How beautiful is that?

P.P.S. Want to learn more about happiness and how to get off the hedonic treadmill? Check out one of the very first TED talks on the science of happiness. Thoughts? Hit “reply” and let me know.

1 https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8342008/

2 https://www.cnbc.com/2021/11/26/stock-futures-open-to-close-market-news.html

3 https://www.cbsnews.com/news/foster-dad-lamont-thomas-adopts-five-siblings

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The “Great Resignation”

Investment Advisor · Oct 29, 2021 ·

< back to Market Insights Blog

How are you feeling about work these days?

Are you taking stock of your life and thinking about moving on? (You’re not alone.)

Are you a boss struggling to fill roles and retain your people? (You’re in good company.)

America is going through a pretty major reconfiguration of the labor market.

Headlines are calling it the “Great Resignation” but I think it’s deeper than that.

The pandemic threw many assumptions out of the window. It caused us to think long and hard about a lot of things.

Where we work. How we work. What work means. What we want out of life.

That existential crisis is visible on the supply side of the labor market:

Folks retiring ahead of schedule (not all by choice).¹

Folks quitting their jobs.²

Folks (primarily women) caring for kids and family instead of going back to work.³

Folks striking over pay and working conditions.⁴

Folks starting new businesses.⁵

And it’s visible on the demand side as well:

Restaurants struggling to staff up.⁶

Shipping ports clogging up because there aren’t enough truckers to haul goods away.⁷

Employers offering higher wages and perks to attract job seekers.⁸

At its most basic level, employment is a transaction: a certain amount of work for a certain amount of pay.

But it’s really much more than that.

For many of us, who we are as a worker…

A business owner…

A boss…

Is central to our identity.

And the ground is shifting under our feet. That makes folks anxious.

High-anxiety times like these bring plenty of judgment, blame, and dramatic headlines.

Are workers who don’t want to take low-paying, high burnout jobs lazy?

Of course not.

Are business owners worried about keeping their doors open evil capitalists?

Nope.

Are employees organizing strikes or leaving for better opportunities disloyal?

No way.

We’re all doing the best we can every day.

When we see talking heads griping about “entitled” workers or “greedy” businesses, let’s remember that behind the numbers are real people with real struggles.

A parent with a medically fragile kid who is afraid to go back to work.

A business owner who worries the staffing shortage will put her out of business.

A laid-off worker who doesn’t have the skills needed to get a different job.

A manager who is doing two jobs because he can’t fill a key role.

Let’s be compassionate toward one another.

What does the labor market upheaval mean for the economy?

That’s hard to say.

It could cause a slowdown in some sectors if businesses struggle to fulfill demand.

It could lead to increased inflation if higher wages get passed on as higher prices.

It could be a factor in a market correction.

It could also accelerate trends toward automation, remote work, and offshoring.

Bottom line: Like most major events in history, the overall consequences won’t be fully visible for a long time.

I’ll close by asking: what’s your take on all this, Goran?

Are you pondering any big work or life changes?

Hit “reply”and let me know.

Be well,

Goran Ognjenovic
Independent Investment Advisors
(971) 350-8068
www.independentadvisorsnw.com

P.S. What else do you think the pandemic will change? Any thoughts to share?

¹https://www.economist.com/the-economist-explains/2021/09/28/why-are-americans-retiring-earlier

²https://news.yahoo.com/why-american-workers-are-quitting-in-record-numbers-151116968.html

³https://www.pbs.org/newshour/economy/the-pandemic-was-a-breaking-point-for-caretakers-will-it-be-a-turning-point

⁴https://www.reuters.com/world/us/enoughs-enough-tight-us-job-market-triggers-strikes-more-pay-2021-10-18/

⁵https://www.gspublishing.com/content/research/en/reports/2021/10/04/be005ed1-1b6b-42f7-af9b-fb209077ca35.html

⁶https://www.wboy.com/news/health/coronavirus/restaurants-continue-to-face-staffing-shortages/

⁷https://edition.cnn.com/2021/10/14/business/supply-chain-ports-biden-inflation/index.html

⁸https://www.retaildive.com/news/retailers-are-betting-on-wage-hikes-perks-to-woo-workers-ahead-of-the-holi/607815/

Taper tantrum part deux?

Investment Advisor · Sep 2, 2021 ·

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Could the Fed’s actions cause a correction or economic slowdown?

Let’s discuss.

First of all, what does ”tapering” mean?

In econ-speak, tapering means winding down the pace of the assets Fed has been buying since last summer.

Why is it a big deal?

Well, the last time the Fed tapered in 2013, during the recovery from the 2008 financial crisis, markets panicked and pitched a “taper tantrum.”²

That’s because traders worried that less Fed support would hurt fundamentals and potentially cause a market downturn.

Now, that old taper tantrum narrative is making folks worry that another market downturn could be ahead of us, especially with concerns about the delta variant.

Before we dive into what could happen, let’s talk about where we are and how we got here.

When the pandemic started, the Fed slashed interest rates and began buying $120 billion a month in bonds and mortgage-backed securities to reduce interest rates, lower borrowing costs, and give businesses and the economy a boost.¹

Could the Fed's actions cause a correction or economic slowdown?

However, now that the economy is much stronger, the employment situation has improved, and inflation is a concern, the Fed wants to start paring back those asset purchases to return interest rates to a more “natural” level.

What could that look like?

Obviously, we don’t know exactly when or how the Fed will decide to act, but analysts have some pretty good guesses.

The latest prediction by Bank of America suggests tapering could start this November as the Fed gradually pares back asset purchases through next year.¹

The takeaway is that the Fed isn’t going to stop buying assets and raise interest rates immediately.

It’s going to gradually remove the support and see how the economy reacts.

So, will we see another taper correction?

The main reason folks worry about Fed reducing support is because of the effect higher interest rates could have on stocks, particularly companies that rely on borrowed money.

However, interest rates are just one piece of the puzzle. Economic fundamentals, earnings, and other factors also weigh on stock prices.

With the benefit of hindsight, we can see that the 2013 taper tantrum wasn’t even that bad. The S&P 500 tumbled 5.8% over the course of a month but quickly recovered (the caveat here is always this: the past does not predict the future).²

I think the main reason markets declined last time was that investors hadn’t experienced tapering before; they didn’t have context for what the Fed would do.

Since we’ve seen this happen before fairly recently, I think that uncertainty is lessened.

However, we also have other worries to consider: a deteriorating crisis in Afghanistan, continued pandemic worries, and political wrangling over infrastructure.

Any of these factors could derail the bull market.

But it’s not going to be the end of the world.

Corrections are always something we should expect. They happen regularly and are a natural part of markets.

The Fed is one more thing I’m keeping an eye on, and I’ll reach out if there’s more you should know.

Be well,

Goran Ognjenovic
Independent Investment Advisors
(971) 350-8068
www.independentadvisorsnw.com

P.S. What’s something new or exciting in your world? Do you mind sharing it with me?

¹ https://markets.businessinsider.com/news/bonds/fed-taper-asset-purchases-november-bonds-mbs-federal-reserve-economy-2021-8

² https://www.barrons.com/articles/stock-market-taper-scare-what-comes-next-51629505091

We’ve come so far!

Investment Advisor · Aug 16, 2021 ·

< back to Market Insights Blog

Headlines are looking grim again, so let’s pause and take stock.

Why are the headlines terrible?

Because the media loves drama. This is not news to you or me or anyone who pays attention. The 24-hour news cycle is there to whip up emotions and keep us glued to the latest “BREAKING NEWS.”

So, what’s behind the noise and should we worry?

Before we jump into unpacking the news, let’s take a moment and remind ourselves of how far we’ve come since the pandemic began.

You can see it right here in this chart:

Cumulative change in jobs during the pandemic

We’ve recovered the vast majority of jobs lost since the bottom of the pandemic’s disruption last April. The economy is still missing several million jobs to regain pre-pandemic levels, but we’ve made up a lot of ground, and jobs growth is still strong.¹

In fact, there are more job openings right now than job seekers to fill them.²

But there’s an important caveat to the chart above.

The monthly jobs report is what economists call a “lagging” indicator, meaning that it’s telling us where the economy was, not where it’s going.

To figure out what might lie ahead, economists turn to “leading” economic indicators that help forecast future trends.

So, what are the leading indicators telling us about the economy?

A couple of the most popular indicators are manufacturing orders for long-lasting (durable) goods, since companies don’t like to order expensive equipment unless they expect to need soon.

Another one is groundbreaking (starts) on new houses, which indicate how much demand builders expect for housing.

Let’s take a look:

Both indicators suggest continued (if bumpy) growth. Now, those are just two sectors, and we want to be thorough, so let’s take a look at a composite.

The Conference Board Leading Economic Index (LEI) gives us a quick overview each month of several indicators.

It increased by 0.7% in June, following a 1.2% increase in May, and a 1.3% increase in April, showing broad, but slowing growth.³

What does that tell us? That the economy still has legs.

Will the delta variant derail the recovery?

A serious slowdown due to the delta variant seems unlikely, but we could potentially see a bumpy fall, especially in vulnerable industries and areas with surging case counts.

There’s also some potentially good news about the delta variant that we can take from other countries.

India and Great Britain both experienced delta-driven surges earlier this summer.⁴

And what happened?

A steep and scary rise in case counts and hospitalizations…followed by a rapid decline.

It seems that these fast-moving delta waves might burn themselves out.

Unfortunately, these surges come with a painful human cost to patients, overburdened medical staff, communities, and families.

But, if this pattern holds true in the U.S., it doesn’t appear that the economic impact will be heavy enough to derail the recovery.

All this to say, it’s clear that the pandemic is still not over.

But we’ve come such a long way since the darkest days of 2020 and the road ahead still seems bright (if a little potholed).

Please remember to take panicky headlines with a shaker or two of salt.

I’m here and I’m keeping watch for you.

Have questions? Please reach out.

Be well,

Goran Ognjenovic
Independent Investment Advisors
(971) 350-8068
www.independentadvisorsnw.com

P.S. The bipartisan infrastructure deal is still making its way through Congress, and we don’t yet know what the final details will look like. The Democrat-led infrastructure deal is also in the works, but we’re not likely to see serious movement until the fall. I’ll keep updating you as I know more.

1 https://www.cnbc.com/2021/08/06/jobs-report-july-.html

2 https://www.cnbc.com/2021/08/07/there-are-about-1-million-more-job-openings-than-people-looking-for-work.html

3 https://conference-board.org/pdf_free/press/US%20LEI%20PRESS%20RELEASE%20-%20July%202021.pdf

4 https://nymag.com/intelligencer/2021/08/the-u-k-s-delta-surge-is-collapsing-will-ours.html

Is the sky falling (again)?

Investment Advisor · Jul 23, 2021 ·

< back to Market Insights Blog

There’s a lot going on in the world right now.

I thought this note was going to be about the $3.5 trillion budget deal or what to do with any child tax credits that may be heading your way.

But then global markets jolted on fears of new viral variants.

Is the sky actually falling?

Could a big correction happen?

After hitting record highs in previous days, markets tumbled Monday, sending the Dow 700+ points lower.¹

Why?

Mostly fears of a COVID-19 resurgence caused by the delta variant that could derail the economic recovery.

Case numbers are rising globally, even in countries with high vaccination rates, and the surge could lead to a return to travel restrictions and business closures.²

Could these market jitters cause a 10%+ correction?

Absolutely.

Should we panic and freak out?

Definitely not.

Here are a couple of reasons why:

Summer months can bring higher volatility, perhaps because of lower trading volume, making bad news shake the market harder.³

We’ve had a pretty long winning streak, and corrections are part and parcel of a healthy market, especially when we’re near all-time highs.

New variants and higher case counts are a threat. However, vaccination rates are continuing to rise, and experts don’t think that we’ll see the devastating health outcomes we saw last year.⁴

Could the delta variant cause the economy to slow down?

It’s hard to say at this point. The rosy projections about the economy have been based on a swift return to normal from the shortest recession in history.⁵

If surging case counts cause a resumption of business and travel limits, we could definitely see a hit, especially in recovery-dependent industries like airlines, cruises, and hotels.

Supply chain issues are still causing materials shortages, creating delivery delays of goods, and potentially triggering slowdowns in industries such as building and construction.⁶

However, consumer spending is still very strong and the economy is in way better shape than it was last year.⁷

Bottom line: we could see some economic complications due to the delta variant and we’re likely to see more market volatility ahead, especially if economic data disappoints.

I’m keeping an eagle eye on the trends and will be in touch with you personally if your strategy needs to change.

Have questions? Please reach out. I’m always here to help.

Calmly,

Goran Ognjenovic
Independent Investment Advisors
(971) 350-8068
www.independentadvisorsnw.com

P.S. A massive $3.5 trillion budget deal is working its way through Congress.⁸ It’s got a lot of moving parts that may affect taxes, Medicare, and much more. I’ll reach out when we know more about how it’s likely to shake out.

¹https://www.cnbc.com/2021/07/18/stock-market-futures-open-to-close-news.html

²https://www.reuters.com/business/healthcare-pharmaceuticals/delta-covid-variant-now-dominant-worldwide-drives-surge-us-deaths-officials-2021-07-16/

³https://www.nasdaq.com/articles/volatility-gauge-suggests-tactical-trading-during-summer-doldrums-2021-07-19

⁴https://www.nature.com/articles/d41586-021-01696-3

⁵https://www.cnbc.com/2021/07/19/its-official-the-covid-recession-lasted-just-two-months-the-shortest-in-us-history.html

⁶https://www.washingtonpost.com/us-policy/2021/07/20/biden-delta-coronavirus-economy/

⁷https://www.reuters.com/business/finance/us-retail-sales-unexpectedly-rise-june-2021-07-16/

⁸https://www.cnbc.com/2021/07/14/democrats-3point5-trillion-budget-package-funds-family-programs-clean-energy-medicare-expansion.html

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.