Q3 GDP Growth Drags, Debt Ceiling Standoff, Home Prices Still Soaring
In today’s Steady Investor, we look at key questions investors are asking, and factors that we believe are currently impacting the market such as:
- Slower than expected U.S. GDP growth in Q3
- Status of the government shutdown and debt ceiling standoff
- Soaring home prices
- Transitory inflation
Slower than Expected U.S. GDP Growth in Q3 – At the outset of the year, many economists were anticipating strong vaccine uptake would steadily decrease pandemic risk, giving way to booming growth in the second half of the year. The economic forecasting firm, IHS Markit, thought in mid-July that the U.S. economy would grow by 7.8% in Q3 – today, their forecast has fallen to 3.6%. U.S. consumer confidence has also sunk in recent months, also tied to the rapid spread of the Delta variant and re-introduction of mask restrictions and in some cases, vaccine mandates. The Conference Board’s consumer confidence index1 dropped from 115.2 in August to 109.3 in September, signaling those consumers were less enthusiastic about spending as the summer wore on. Supply constraints, which we have written about many times in this space, are also weighing on overall economic growth. Taken together, these headwinds are likely to show a marked slowdown in U.S. GDP growth in Q3, but the upshot is that economists across the board are in turn raising growth estimates for Q4 and the first half of 2022. The perfect storm for growth would be that Covid-19 cases, hospitalizations, and deaths continue to fall as supply chain issues slowly resolve themselves.2
Volatility in this current market can be very challenging, but we encourage investors to not give into fear! Do you know that there are positive aspects of volatility that can keep your investments afloat?
If you have $500,000 or more to invest, get our free guide, “Using Market Volatility to Your Advantage” and learn our insights, based on decades of experience, about how a volatile market may be able to help investors refine their strategies and potentially generate solid returns over time.
Looming Government Shutdown and Debt Ceiling Standoff – Many readers are seeing news of a looming government shutdown and debt ceiling debate and think, “here we go again.” Raising the debt ceiling has almost always been a routine affair – Congress has raised the debt ceiling close to 100 times in the postwar era. Raising the debt ceiling means enabling the U.S. Treasury to sell bonds in order to pay for spending that Congress has already authorized. Raising the debt ceiling also means staying current on existing government obligations, like Social Security payments, tax refunds, payments to military families, and so on. Treasury Secretary Janet Yellen told Congress this week that the government would be unable to pay its bills if lawmakers did not raise the debt ceiling by October 18, saying America could “default” for the first time if action was not taken. This is scary language, but there is also some hyperbole here – the U.S. Treasury is required to pay bond interest first, and tax revenues should allow the U.S. to continue making interest payments on time. Ms. Yellen’s warnings of “default” are seemingly more designed to get Congress to act, versus being an actual risk for the U.S. in the near term. Not raising the debt ceiling would mean missing entitlement and other payments, which is by no means a good outcome and could lead to volatility. But talk of “default” needs to be examined more closely.4
Home Prices Continue Soaring to New Records – The U.S. housing market continues to remain strong. The S&P CoreLogic Case-Shiller National Home Price Index posted yet another record for year-over-year home-price increases, notching a 19.7% gain from July 2020 to July 2021. The index measures average home prices in major metropolitan areas across the U.S., so does not even factor sharp growth seen in emerging towns and small cities that have seen a surge of new buyers leaving the cities for bigger spaces. The 19.7% y-o-y gain marks the sharpest increase since the index began keeping records in 1987.5
Longer-Than-Expected Transitory Inflation – The Federal Reserve and Chairman Jerome Powell have long held that inflation in the U.S. is only temporary (“transitory”), as a surge in demand is being met with supply constraints and issues with the global supply chain. But what happens when “transitory inflation” lasts longer than expected? Is it then no longer transitory, but more permanent? Chairman Powell thinks not – in statements this week, Powell said the reopening of the economy is “a process that will have a beginning, middle, and an end,” and that the U.S. has not yet moved through that cycle. In Mr. Powell’s view, the economy will settle into a post-pandemic growth phase where supply chains run smoothly again, demand wanes slightly, and inflation settles back towards the Fed’s target of 2%. Mr. Powell also defended keeping monetary policy accommodative, stating that there is a long history of the Fed not doing enough. Even still, the Fed appears poised to taper bond purchases later this year but remains split on when to raise interest rates, with half of the voting members favoring late 2022 and the other half wanting to wait until 2023.6
Silver Linings in a Volatile Market – It may be hard to find silver linings in a volatile market, but that doesn’t mean they aren’t there!
To help give you additional insight into how you can make the most of turbulent times, I recommend reading our guide “Using Market Volatility to Your Advantage.”7 This guide can help you learn about our insights, based on decades of experience, about how a volatile market may be able to actually help investors refine their strategies and potentially generate solid returns over time.
If you have $500,000 or more to invest, download this free guide today by clicking on the link below.
2 Wall Street Journal. September 28, 2021. https://www.wsj.com/articles/consumer-confidence-continues-slide-on-covid-19-inflation-worries-11632842406?mod=djem10point
3 ZIM may amend or rescind the free guide offer, Using Market Volatility to Your Advantage, for any reason and at ZIM’s discretion.
4 Wall Street Journal. September 28, 2021. https://www.wsj.com/articles/yellen-says-treasury-could-exhaust-cash-reserves-by-oct-18-if-debt-limit-isnt-raised-11632835248?mod=djemRTE_h
5 Wall Street Journal. September 28, 2021. https://www.wsj.com/articles/home-price-growth-hit-record-in-july-11632834044?mod=djemRTE_h
6 Wall Street Journal. September 29, 2021. https://www.wsj.com/articles/powell-says-supply-chain-bottlenecks-could-lead-to-somewhat-longer-interval-of-high-inflation-11632934764
7 ZIM may amend or rescind the free guide offer, Using Market Volatility to Your Advantage, for any reason and at ZIM’s discretion.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.
Zacks Investment Management, Inc. is a wholly-owned subsidiary of Zacks Investment Research. Zacks Investment Management is an independent Registered Investment Advisory firm and acts as an investment manager for individuals and institutions. Zacks Investment Research is a provider of earnings data and other financial data to institutions and to individuals.
This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel. Publication and distribution of this article is not intended to create, and the information contained herein does not constitute, an attorney-client relationship. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole.
Any projections, targets, or estimates in this report are forward looking statements and are based on the firm’s research, analysis, and assumptions. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. All expressions of opinions are subject to change without notice. Clients should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed in this presentation.
Certain economic and market information contained herein has been obtained from published sources prepared by other parties. Zacks Investment Management does not assume any responsibility for the accuracy or completeness of such information. Further, no third party has assumed responsibility for independently verifying the information contained herein and accordingly no such persons make any representations with respect to the accuracy, completeness or reasonableness of the information provided herein. Unless otherwise indicated, market analysis and conclusions are based upon opinions or assumptions that Zacks Investment Management considers to be reasonable. Any investment inherently involves a high degree of risk, beyond any specific risks discussed herein.
The S&P 500 Index is a well-known, unmanaged index of the prices of 500 large-company common stocks, mainly blue-chip stocks, selected by Standard & Poor’s. The S&P 500 Index assumes reinvestment of dividends but does not reflect advisory fees. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor. An investor cannot invest directly in an index.