What will the markets do next?
We’re halfway through 2021 and while we don’t have the volatility and unpredictability we had in 2020, it’s still been a wild year. So far this year, we’ve seen housing prices soar, interest rates remain low, inflation increasing to levels we haven’t seen in over a decade, and increased government spending.
I’ve said it before, I don’t know what will happen day to day in the market or what little news event will cause a blip, but I’m really optimistic about the direction the markets are heading. Now there are always unforeseen things that can upset outlooks and forecasts, like we saw in 2020. In case you’ve blocked it from your memory, some of the events included a pandemic, an oil crisis, and an intentional shutdown of the economy. As we can’t predict everything and predictions are bound to be wrong, I’m still positive about the direction of things.
There are innumerable factors that make the markets unpredictable, primarily that it can be driven by emotion. That said, here are three reasons I think the markets will continue their upward trajectory for the near term. First, pent up demand and businesses coming back to “normal” operation. Second, so much cash on the sidelines. And last, government spending increases.
Pent Up Demand
What is the thing you most miss doing pre pandemic? Eating out at restaurants? Flying for vacation or visiting friends and family? Going to concerts, festivals, or sporting events?
All of these things and more are ramping up more and more and everyday people are taking advantage. In my little town of Plymouth, Friday nights mean concerts in the park. The Music in the Air series brings local bands to Kellogg Park in downtown Plymouth. People have been turning out in the thousands to enjoy the weather, music, and of course the Kiwanis’ Popcorn Wagon.
Similarly, restaurants are booked with outdoor dining and flights are busy. I expect this increased activity by folks who’ve been cooped up at home for nearly a year to continue. All this activity will continue to increase the flow of money which stimulates the economy and markets.
Cash In the Bank
Sidenote here, if you’re using a bank, I’d encourage you to consider a credit union.
Americans have record levels of savings in the bank. There are a few reasons for this. One is refereneced earlier, decreased spending during the pandemic. Another is government stimulus; they’ve been giving money to citizens who’ve let it build up. A third reason we have record high levels of savings in bank accounts is the markets rising and people cashing out their gains to move to more conservative places, like savings accounts.
While these don’t mean people will spend more, it certainly is an opportunity. In a “normal” economy, people will spend, save, and donate their money. I’m curious to see how these habits change going forward. Will people keep increased savings? Will they go back to pre pandemic spending, which will reduce the savings? It’s impossible to say with certainty, but if history repeats in some manner, people will probably spend it which is probably not great for their individual financial plan, but is good for the markets and economy.
Last, government spending. Not to get political, but there seems to be more political will and consensus than in the recent past to get things done. Between all the stimulus bills, aggressive agenda of the new administration, initial agreement on infrastructure spending, etc, when the government spends, the markets cheer and rally.
Anytime the government is making changes, it creates opportunities in the business world. There are usually winners and losers, but when there’s change, those that can capitalize on it will win and thrive.
All of that said, my optimism is certainly not a recommendation to go buy into the markets today. That’s a decision that needs to be made in context of your financial plan, risk tolerance, risk capacity, and goals.
The only thing I know about the markets is no one can say with certainty what will happen day to day. I think over time, history will repeat and the markets will continue their upward trend, of course with the inevitable bumps on the road.
While there are headwinds, risks, uncertainty, and unpredictable factors, I believe the fundamentals and environment we are in is ripe for growth. I believe some of the elements that will push the markets up are the pent up demand from the pandemic lockdown & forced business shutdowns, record levels of cash at the bank for households, and continued governmental spending. I think between these factors and continued business innovation that has always been a driver in America and worldwide, we will see the markets continue to rise.
If you’d like to discuss your financial situation or create a financial plan, Telos Financial would be glad to discuss a possible relationship with you. Contact us today to schedule an introductory meeting. Telos is a fee based, holistic financial planning firm serving Michigan’s high income and high net worth professionals, millennials, recent college graduates, and small business owners.
Thanks for reading the latest edition of Planning for your Purpose, Telos Financial’s blog, where I discuss different topics related to financial planning. CERTIFIED FINANCIAL PLANNER™ professional Dennis LaVoy is Plymouth, Michigan’s holistic financial advisor serving clients throughout the mitten as well as across the country.
The primary purpose of the blog is to introduce financial planning concepts and questions I receive from clients that I believe are important. I want to start discussions that will educate, benefit, and improve your financial life, ultimately, to help you focus on your telos!
Telos Financial is located in Plymouth, Michigan and focuses on serving young professionals and their families. Dennis LaVoy is a Certified Financial Planner® Designee and a Chartered Life Underwriter®. Dennis founded Telos Financial and to provide fiduciary financial services to families across Michigan including Plymouth, Canton, Ann Arbor, Detroit, and as well as all over the great United States of America.