I want to update you regarding the stock market and economy in these pressing times. We are in ‘the mid to late’ innings on the stock market and economic cycle. The stock market saw some changes in 2019 with a return of 31.5%; in 2020, the return was 18.3%, and in 2021, the S&P return is 18.9%. We have seen that over the past 95 years, the return of the S&P 500 has been about 10% a year. We are above its trend, and at some point, we would probably normalize, but at this point, we’re still optimistic. A few other things to the update would be that the unemployment rate is down by 5.4%, and inflation is accelerating. The signs indicate that we are in the middle of an economic cycle, not at the beginning or the end.
There are many concerns about the delta variant and the slowing economy worldwide. We see a rise in the number of cases in the U.S and other parts of the world. There are talks about boosters for the older population sometime in September or October, which should be a plus for us all. There are more pressing concerns about China. China has gone after the tech companies, both local Chinese tech companies and all the U.S Tech companies in China.
Knowing these and what’s going to happen next shows uncertainty to the stock market and the world economy. China is a wildcard, and you always have to be concerned about what actions they will take. The last concern I am going to mention is valuations. Valuations are high by historical standards, but there are two good reasons why they are. One is because interest rates are still meager, and two, corporate profits have been excellent. So we do have to be mindful of the level of interest rates.
In wrapping it up, we’re still positive on the stock market. We need to observe the interest rates because it is a headwind for stock valuations if it rises. Also, another thing to watch is the vulnerability in the market and if the Federal Reserve would tighten monetary policy with raising interest rates where they stop their bond-buying program.
And if you would like to have an in-person meeting outside our office, we are more than happy to meet with you.
President & Chief Investment Officer