Equities continued to climb higher this week. Federal Reserve Chairman Jay Powell spoke on Thursday and detailed the Fed’s new directive to allow inflation to surpass its 2% target without adjusting the federal funds rate. This is a major change in Federal Reserve policy stemming back to the 1970s when inflation was a major issue and a hawkish stance towards inflation was necessary.
The recent period post-2008 financial crisis has been disinflationary, despite measures by the Federal Reserve to spur inflation. Whether or not this signal by the Fed causes a change in inflationary pressures remains to be seen. We will, of course, continue to monitor any potential portfolio impacts of this change in policy and make adjustments, if necessary.
Below are the topics for this weekend’s reading.
Vanguard released their latest 10-year expected returns study for various asset classes. This study is valuation-based, so, if certain asset classes have a higher current valuation than history, the expected future return should be lower.
Generally speaking, Vanguard expects the next 10 years’ investment returns to be lower than the past 10 years across most asset classes. This should be no surprise, as market valuations are high relatively to history and interest rates are low. We will continue to plan for a low-return environment and structure portfolios accordingly.
Capital Group breaks down the 4 potential outcomes of the November elections as well as Capital Group’s expected economic and market impact of those 4 outcomes. As a reminder, for long-term investors, the US presidential elections have mattered little to long-term stock market returns. The markets have tended to power through elections regardless of whether a Democrat or Republican was elected. As Capital Group states, “By design, elections have winners and losers, but the real winners have been investors who stayed the course and avoided the temptation to time the market.”
We hope everyone has a happy and safe weekend. Please give us a call if you have any questions.
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