The fourth quarter got off to a great start for stocks with the S&P 500 rallying almost 7% in October after a down month in September.  The recent move brings the index return to about 23% year to date.  (YCharts)

Last month we reviewed the status of our economic dashboard – in short, it looks strong.  We believe that the strength seen in the dashboard combined with accommodative fiscal and monetary policy, and strong corporate earnings means that the chance of a recession in the near-term remains low. 

That said, a pickup in stock market volatility over the last few months has been attributed to a handful of risk factors.  Here, we will recap three of these risks that we’re watching closely:

• Inflation – we’ve talked about inflation almost every month, but as supply chain problems and labor market tightness persists this is a tangible risk that we’ll continue to monitor.  The silver lining for many is that next year social security benefits will get the biggest bump in 40 years (5.9%).
• Debt Ceiling – the debt ceiling (the limit on how much the federal government can borrow) was raised in the beginning of October. Unfortunately, the issue will return soon as it was only punted for a couple of months.  The debt ceiling is raised frequently (79 times since 1960 according to LPL Financial), but the closer we get to the deadline without a resolution the uncertainty surrounding the outcome increases.  The increasing uncertainty has the potential to lead to market volatility.
• Interest Rates – the US 10 Year Treasury yield has rallied over the last few months, jumping from about 1.19% at the beginning of August to almost 1.6% at the end of October.  A jump in rates has the potential to impact many areas of the economy and stock market, particularly borrowing costs and stock market valuations. 

While each of these risks are worth monitoring, we believe it’s unlikely that any one of these would significantly change our optimistic outlook at this time.

On another note, the end of the year is only two months away, and our financial planning team is busy working on many year-end items for clients.  If you have any year-end planning items you’d like to review (charitable giving, RMD’s, etc…) please let us know.

Sincerely,

Your Team at TLWM

*Investment advice offered through TLWM, LLC., a registered investment advisor.

* The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.

* The Standard & Poor’s 500 (S&P 500) is an unmanaged index. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.

* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.

*Credit risk can be a factor in situations where an investment’s performance relies on a borrower’s repayment of borrowed funds. With credit risk, an investor can experience a loss or unfavorable performance if a borrower does not repay the borrowed funds as expected or required. Investment holdings that involve forms of indebtedness (i.e. borrowed funds) are subject to credit risk.

* Typically, the values of fixed-income securities change inversely with prevailing interest rates. Therefore, a fundamental risk of fixed-income securities is interest rate risk, which is the risk that their value will generally decline as prevailing interest rates rise, which may cause your account value to likewise decrease, and vice versa. How specific fixed income securities may react to changes in interest rates will depend on the specific characteristics of each security. Fixed-income securities are also subject to credit risk, prepayment risk, valuation risk, and liquidity risk. Credit risk is the chance that a bond issuer will fail to pay interest and principal in a timely manner, or that negative perceptions of the issuer’s ability to make such payments will cause the price of a bond to decline.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

* Past performance does not guarantee future results. Investing involves risk, including loss of principal.

* You cannot invest directly in an index.

* Consult your financial professional before making any investment decision.

* Stock investing involves risk including loss of principal.

* This document is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Texas Legacy Wealth Management and its representatives are properly licensed or exempt from licensure.

* No strategy ensures a profit or protects against a loss.