Is a Slowing Growth Period in Our Future?
Key Points – Is a Slowing Growth Period in Our Future?
- A Slowing Growth Period
- An In-Depth Look at Bullish Indices
- Are the Markets Still Overvalued?
- Tracking the Tax Proposals Leading Up to Thanksgiving
- 3 minute read | 6 minutes to watch
Markets are at all-time highs, there’s in-fighting in Congress, and the holiday season and end of the year are approaching. What does all this mean to the economy and the markets? Stick around as I discuss this during Modern Wealth Management’s Monthly Economic Update.
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A Slowing Growth Period
October was by all accounts a great month for the markets. Economically, things look very sound. We do seem to be in what I will call a slowing growth period. However, I think that slowing growth period will continue over the next two years through the end of 2023 to avoid any type of recession.
The caveat to that would be a massive tax bill that would cripple the consumer. Of course, there’s been a lot of talk about that. We have no idea exactly where that’s all going to land, but let’s take a quick look at what’s going on with the equities markets.
An In-Depth Look at Bullish Indices
FIGURE 1 | Market Performance | Chaikin Analytics
Above in Figure 1, you’ll see everything from the OEF, which is the S&P 100, all the way down to the SLY, which is the Small Cap 600. When we look for an example at QQQ, it’s showing that index as very bullish. Thirty-three of the companies out of the QQQ, the NASDAQ 100, are green, which is very bullish. Fifty-four of those companies are neutral and 13 are trending negative.
You can look down the line and see that every index is neutral or bullish. A couple of them are very bullish. We look at this kind of information daily to see where’s money flowing. What do the stocks underlying these indexes look like.
FIGURE 2 | Market Performance Year-to-Date | Chaikin Analytics
These different indices are highlighted in the following charts, starting with Year to Date in Figure 2 above. If we sort this by best performing to worst performing, the Dow Jones Industrial Average is your worst-performing sector of the market on a year-to-date basis, and it’s still up by 17.91%. Our best performer is the S&P 600 Small Cap, up almost 26%. You’ve got the RSP equal weight, S&P 100, S&P 400 Midcap, and the NASDAQ 100 all up 24% or higher for the year.
FIGURE 3 | Market Performance October 2021 | Chaikin Analytics
If we look at the last month above in Figure 3, we see a little bit more divergence. Our best performing asset, the NASDAQ 100, was up 8%. Small cap is the lagger for the last month, up just 3.82%. Then, you have everything else in between.
Are the Markets Still Overvalued?
What does that lead us to? We’ve been talking about the fact that the markets are overvalued. I still believe that. However, if some of the blowout earnings from the last few weeks remain strong through corporate America, these equity prices can be sustained, and we can still have some upside potential.
I don’t think by any stretch that we can go through another 10-month period with anywhere from 18% to 25% returns. I don’t think that’s in the cards, but I also don’t think that a bear market is imminent. Like I said earlier, I still see a slowing growth pattern over the next two years.
I think that keeps us out of any kind of recession and keeps us away from a bear market. That doesn’t mean that we can’t have the normal, 10-plus percent corrections here and there. Those are healthy for the markets to blow off a little bit of steam.
I believe we’re going to finish out this year in a strong fashion with possibly another 2% to 3% more in total return between now and the end of the year. I also think that interest rates on the 10-year treasury will remain subdued, hovering in that 1.5% to 1.7% range. That should start to eke up next year, but I still think we’ll finish 2022 with a 10-year treasury at around 2%. I believe we’ll see that slowing economic growth period and the total GDP growing at a 2% to 2.5% total annual rate through 2022 and 2023.
Tracking the Tax Proposals Leading Up to Thanksgiving
All that remains to be seen. Again, the big caveat are the tax proposals. Those could change everything overnight, but there doesn’t seem to be any conclusion for what they’ll entail. Stay tuned. We’ll continue to monitor all this and more.
I want to wish everybody a very happy Thanksgiving season. I hope you can spend time with your family and friends and do the things that you truly love and enjoy. I’ll be back with you very early in December for another economic update. Thanks for joining me.
If you’re interested in starting a conversation, but are not a client of Modern Wealth Management, schedule a complimentary consultation below or call us at (913) 393-1000. We’re happy to help you.
Dean Barber Founder & CEO
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The views expressed represent the opinion of Modern Wealth Management an SEC Registered Investment Advisor. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Modern Wealth Management does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.