What Happened: Congress still inoperable without House Speaker
What’s It Mean: As we recall from our ‘I’m Just a Bill” days, legislation is drafted in the House or the Senate to be sent to the other branch for review and votes. When each side confirms, it is sent to the executive branch (President) to be signed into law. Without a House Speaker, this cannot be done.
Congress is quickly rolling into the November funding issue where the Government is set to once again run out of money and bump up against our debt limit. At present, Congress is at odds with how to handle this and, without a Speaker, it won’t stand a chance. In the world’s eyes, this is wreaking havoc on the debt markets as treasuries are sold, rates are moving higher and stocks suffer. Throw in the fact that we’re watching escalating war between Israel, Hamas and the potential for surrounding nations to become involved, the fact that the US is basically inoperable at this stage is, at minimum, not a good look./
Why do we care? While our Government doesn’t always act in a rational manner, regardless of what side you may agree with, the fact that they can’t act at all is sparking additional ripples that seem to be escalating into US debt markets. If we can’t seem to resolve these Congressional issues, it raises odds of another government shutdown in November and the real possibility of further credit rating decreases.
On the flip side, markets seem to be discounting this ahead of time and any resolution may spark a wave of bond buying that sends rates down and stocks up. Unlike significant economic erosion, much of the market weakness in our opinion is self-induced and can be reversed extremely fast.
What Happened: Markets Continue to Pullback, Uncertainty Abounds
What’s It Mean: The S&P 500 peaked in November of 2021 and remains approximately 10% off its highs. The NASDAQ remains 18% off its highs and the Small Cap Index remains 30% off its highs. In short, it has now been almost 2 years with little to no returns for the general market. Needless to say, investors are getting frustrated.
Why do we care? While tensions around the globe continue to heat up and markets remain on shaky ground, we find it important to always remember that over time, historically, stocks have been and, in our opinion, will remain the best option for capital when it comes to growing resources and keeping up with inflation. Sadly, many people take the direct opposite approach to their investments and make irrational and emotional decisions at the precise time that a calm, longer term approach is mandated.
The following chart is a great reminder of asset prices over time and something to keep handy when getting caught up in the day-to-day emotional market volatility.
While it’s true, none of us have 100 years to wait out volatility, markets often price in the future very quickly and is why timing the market or guessing what will happen next is a futile experiment. In our experience, a proper allocation of stocks and bonds with prudent diversification among various asset classes has proven to be our best line of defense against short-term, medium-term and even longer-term volatility.
As we roll into 2024, an ever-important election year, the motivation by all parties involved to improve the economic backdrop, in our opinion, will be extremely high.
Until next time
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