Why the Debt Ceiling Is a Big Deal

Key Points – Why the Debt Ceiling Is a Big Deal

What Will Happen with the Debt Ceiling?
The Fear of Unfathomable Inflation
Market Volatility on the Rise
Reasons to Still Be Optimistic about the Markets
Getting Your Portfolio in Prime Position
3 minute read | 5 minutes to watch

September was the worst month that the S&P 500 has experienced since The Great Recession. What is happening with inflation and interest rates? What is going on with our debt ceiling? I’m Dean Barber, founder and CEO of Modern Wealth Management, and I’m going to cover all of that today on our Monthly Economic Update.

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Video: Retiring at Market Highs

What Will Happen with the Debt Ceiling?

A lot of things going on out there in the political environment right now, the least of which is the debt ceiling. As of today, the debt ceiling has not been addressed. Hopefully by the time we get to November, we will have good news with an increased debt ceiling that doesn’t come with too much pork.

Why is the debt ceiling a big deal? The debt ceiling is a big deal because we need money to fund the government. Why do I say I don’t want it attach to a bunch of pork? Because that’s tied directly to inflation, and inflation is tied directly to interest rates. The market is telling us today that if Congress does nothing—no additional stimulus—then we should hit the Fed’s target inflation ratio.

The Fear of Unfathomable Inflation

The markets are afraid that if this massive $3.5 trillion stimulus comes in, it will cause inflation to run out of control. Inflation is something that most of us have not experienced during our lifetimes, but it is something that the market absolutely hates and is fearful of. We have a great video about Retiring at Market Highs that outlines the impact inflation can have on your portfolio and retirement. I encourage you to watch it.

With all that in mind, that is why we’re seeing the volatility that we’re seeing today. The first thing I want to do is look at what’s going on in the markets. September was the worst month that the market has had since March 2020, which was the beginning of the pandemic. Last month, the S&P 500 was down 4.66%.

FIGURE 1 | Market Performance in 2021 | Chaikin Analytics

I also want to look at what market has done so far this year. Above in Figure 1, you can see that virtually every index is in positive territory. The best index is the S&P SmallCap 600 that is positive 21.26% this year to date. At the bottom of the pack is the Dow Jones Industrial Average, which is positive by 12.21% this year. The S&P 500 is right in the middle and is positive by 15.84% year to date.

Here Comes Market Volatility

We have seen great returns in equities across the board so far this year. I think most of us would agree that if we finished the year at these levels, that it would constitute as a great year in the market. However, we’ve seen the volatility creep back in here over the last month. Let’s look at Figure 2 to see what has happened over the past 30 days.

FIGURE 2 | Market Performance in the Past 30 Days | Chaikin Analytics

All indices are in negative territory. The best index was the S&P SmallCap 600, down by 1.05%. The worst is the NASDAQ, negative by 6.34%. Then, the S&P 500 was negative by 4.41% over the last 30 days.

While the last 30 days have been tough, we also know that September and October tend to be the most volatile months. There are two questions on a lot of people’s minds. Is this just some normal end-of-the-year market volatility like we typically see in the fourth quarter? Or, is this the beginning of something far worse? The only way that we’re going to know that for sure is with time.

Reasons to Be Optimistic about the Markets

I believe this is going to be normal market volatility, normal correction type of activity. There are a few reasons why I say that. The economy is still running strong. There were 568,000 non-government jobs created in September. The private sector payroll was far better than expected. We’ve got the Federal unemployment running out, so that should put people back to work. So, time will tell.

We have interest rates, inflation, and everything that’s going on in politics right now that will continue to cause some volatility in the market. I also think that this is a time where if you started the year at a 60/40 portfolio and are now at a 70/30 portfolio because of what the markets have done, you should consider taking some money off the table. Take the winnings and put them back into the more conservative part of your portfolio.

Get Your Portfolio in the Prime Position

You should be talking to your advisors and making sure that what your portfolio is doing today fits into your overall plan. If risk has become too great because of what equities have done, it may be time to have a discussion to trend that equity position back.

Stay tuned for the economic update for the month of October, which will be released in early November. A lot’s going to happen between now and then, if you have questions, if you need any, make sure you reach out to your advisor here at Modern Wealth Management.

Thank you for joining me and have a wonderful day. Make sure you subscribe to our YouTube channel and give us a thumbs up. Also, I want to encourage you to check out our podcast, The Guided Retirement Show™. There are so many amazing episodes out there right now, and I want you to share those with your friends.

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.