After a strong start to the quarter, stocks pulled back from their recent highs in September. The US economy remains on solid footing, however there are several topics that are concerning markets. The first has to do with the US debt ceiling and both parties being far away from any compromise to allow the debt ceiling to increase risking a potential US default on its debt obligations. The infrastructure bill discussions continue to drag on without any breakthrough on the total size of the package. Inflation also continues to worry the market while supply disruptions continue to increase with container ships and rail backups along with energy prices continuing to rise. Last, but not least, China has continued its crackdown on many different areas in its economy such as real estate, online education, online gaming, and technology. China has also tried to reduce its energy consumption, especially coal, which is causing energy shortages and adding further strain on already frail global supply chains.

The debt ceiling debate is intensifying with US Treasury Secretary, Janet Yellen, warning that the US would be unable to pay its bills without the debt ceiling raised by October 18th. The issue is becoming very political and the potential risk of a US debt downgrade is looming large over markets. Hopes are that an agreement can be reached soon to avoid unnecessary stress on financial markets. Infrastructure discussions continue without any new breakthroughs to end the quarter. Congress was trying to pass two separate bills, but progressives continue to try to force the bills to be linked together. Progressive and moderate Democrats remain divided on the overall price tag of the bills. Expectations are that a compromise will be reached sometime during the month of October.

Inflation concerns continue to be an issue with the Fed’s stance that inflation will be transitory starting to come under question. Global supply chains continue to be fractured for a variety of reasons such as not enough workers, bottlenecks, Covid shutdowns, and lack of excess inventory. These factors are proving to take longer to unwind then the Fed had initially projected and shipping costs continue to increase. Interest rates have also started to rise from their extremely low levels with the Fed indicating they will begin tapering (reducing) their monthly bond purchases by the end of the year. Tapering does not mean tightening, though, so the Fed will remain very accommodative well into 2022. We will be watching for any indication from the Fed of when the first rate hikes will begin with expectations currently split between the first hikes happening at the end of 2022 or early 2023 according to the Fed’s most recent dot plot.

The Chinese government is also making headlines for their strong regulatory crackdown on many areas of their economy such as online gaming, private education, real estate, and the large technology companies. This has increased the risk for publicly traded stocks in China due to the growing risk of further government intervention. China is also dealing with trying to reduce energy consumption and carbon emissions, which is further slowing their manufacturing and adding to supply chain issues.

The fourth quarter is usually a strong period for stocks; however, we maintain our view to be mindful of the risks facing the market for the remainder of the year. We continue to recommend staying the course with your investment objective, and we will rebalance as year-end approaches to bring portfolios in line with our recommended allocations. We also recommend determining any short-term cash needs that you may have over the next six months as we continue to maintain appropriate cash levels for clients needing distributions. Creating this cash can help protect against an increase in volatility and short-term moves in the market. We recommend maintaining a more long-term focus on investment goals and objectives with an understanding that short-term headline risks rarely have a long-term effect on markets.

The Quad Cities Community Foundation is the place where you and your trusted advisor go to fulfill your charitable giving in the most effective way possible. With a 57-year history in the Quad Cities region and a staff of gift planning, investment, and grantmaking professionals, the Community Foundation’s deep knowledge of community needs and opportunities allows it to connect you with the organizations and causes you care about. 

When you trust the Community Foundation with your generosity, you gain access to a range of tailored philanthropic services designed to help you meet your own goals for today and for the future. Whether you want to gift to an existing fund or establish one of your own, the Community Foundation makes the process easy and rewarding. Its team of experts is here to assist you with philanthropic guidance, legacy giving, gift and estate planning, family philanthropy, individualized grantmaking support, scholarships, donor-advised funds, and more.

And by partnering with the financial expertise at Northwest Bank & Trust’s Investment Management Group, the Community Foundation stewards your charitable investment for today’s needs and tomorrow’s opportunities in the Quad Cities and beyond.

To learn how the Community Foundation can help you give to support the community and causes you care most about, contact Anne Calder, vice president of development, at AnneCalder@qccommunityfoundation.org or (563) 326-2840.

U.S. stocks continued to show strong gains this year with the S&P touching new highs at the end of June on strong company earnings and increased consumer spending. Bond yields have also come down in the second quarter after the large increase to start the year. This helped bonds reduce the losses they suffered during the first quarter on rising yields and inflation fears. Inflation fears have been dominating headlines and worrying investors due to the large increases in demand in multiple parts of the economy leading to higher than expected inflation readings. Supply issues have continued to constrain companies from getting back to full capacity due to a lack of workers, supply chain issues, and pricing pressures. The economic recovery remains intact with GDP continuing to show a very robust rebound from the COVID induced shutdown last year. The U.S. is on track to post the strongest GDP figures in decades this year as long as the recovery continues as expected in the second half of the year. COVID-19 infections have come down meaningfully in the U.S.; however, the new Delta variant is of particular concern for its highly infectious characteristics especially for the pockets of the U.S. with the lowest vaccinations rates. This will be something important to track as the year progresses.

Consumer demand has been robust this year after last year’s lockdown measures with many consumers eager to resume spending on dining out, travel, home and auto purchases, and many other retail sectors as the economy reopens. This put a lot of pressure on companies to increase capacity quickly, but many were caught flat-footed and were unable to ramp-up production, obtain the supplies they needed, or hire back enough workers to meet the robust demand. These constraints have caused spikes in inflation along with surging prices in many different areas of the economy. However, there are signs that supply can catch-up with demand eventually noting that the prices of lumber came down over 40% in June as production increased after an extraordinary run-up in lumber prices over the last year. The Fed still views inflation as transitory expecting that the recent sharp increases should eventually subside and average inflation coming back down to more acceptable levels into 2022. We will monitor this area closely in the months ahead as new inflation indicators become available.

Congress is continuing discussion on trying to get a new infrastructure package approved. The Biden administration along with a bipartisan group of senators agreed to a $1.2 trillion infrastructure bill, The Bipartisan Infrastructure Framework, made up of almost $600 billion of new spending and the rest from dollars earmarked for previous unused coronavirus relief funds. The package proposal aims to spend the funds on infrastructure projects over a period of eight years; however, it faces a tough path forward to win approval from Congress. The proposal includes billions of additional spending to improve our nation’s infrastructure with a focus on traditional infrastructure projects benefitting roads, bridges and rail, water systems, and broadband internet access.

We maintain our view to be mindful of risks facing the market in 2021 as COVID-19 cases are on the rise again, and stocks and bonds still trade expensive compared to their historical averages. However, central banks and governments continue to provide massive amounts of stimulus that are driving up asset prices. We continue to recommend staying the course with your investment objective and to rebalance your portfolio by selling strengths and buying into weaknesses to adjust to movements in the market over time. We also recommend determining any short-term cash needs that you may need over the next six months. Creating this cash can help protect against an increase in volatility and short-term moves in the market. We recommend maintaining a more long-term focus on investment goals and objectives, and not reacting to short term up or down movements in the market.

The Putnam Museum and Science Center recently unveiled its new World Culture Gallery showcasing cultures from around the world as reflected in the museum’s historic collection. As a Smithsonian Institution Affiliate, the Putnam houses a collection entrusted to the museum by seven generations of Quad Citians, including objects from the world travels of some of the museum’s founders including the Putnam, Palmer, and Figge families.

The World Culture Gallery’s inaugural exhibit, The Colors of Culture, explores the meaning of color to people of different cultures, including the symbolism of color in adornment, home, and celebration. Raising awareness of the rich cultural diversity found right here in our own community, the exhibit is a partnership with World Relief Quad Cities and includes artifacts loaned by families from the organization’s refugee resettlement program.

The World Culture Gallery is the first of its scale since the opening of the Science Center in 2014 and was made possible by support from Bechtel Trusts, Scott County Regional Authority, the Putnam Museum Guild and numerous private donors and Trustees. Longstanding and generous support of community partners including Northwest Bank & Trust Company are how the Putnam has been able to serve the community for over 150 years.

A museum of history, culture, and science, the Putnam has served the Quad Cities region since 1867 and is the Quad Cities’ only Smithsonian Affiliate. The Putnam brings to life a sense of place, time and purpose to ignite human potential and inspire our diverse community to learn about and care for our world and all its people.

Visit putnam.org and click “Join and Support” to learn about ways you can get involved.

Both the stock and bond markets have traded in a more volatile and choppy fashion in the 1st quarter of 2021, with longer term bonds pulling back more than short term bonds on renewed worries over inflation after the additional stimulus measure enacted by Congress. The recent stimulus package, called the American Rescue Plan Act of 2021, provides an additional $1.9 trillion of stimulus via stimulus checks, extending unemployment benefits, expanding tax credits, along with aid to state and municipalities as well as other payments. The additional stimulus package on top of the large stimulus provided in 2020, along with the global economy gaining momentum on reopening hopes, has created worries in the market about rising inflation and weighed heavy on bond prices in the first quarter of 2021. The Federal Reserve is continuing their accommodative stance and have indicated they are not concerned about increasing inflation expectations. The Fed has stated they feel the increase in inflation will not last with inflation coming back in line with the Fed’s 2.0% mandate in 2022 and that they still do not foresee any increases in the Fed funds rate until at least 2023.

 
With the passage of the American Rescue Plan Act of 2021, expectations have increased for GDP growth in the United States this year. The market is pricing in a strong recovery in the second half of 2021 as more Americans become fully vaccinated and both businesses and consumers begin to open their wallets due to pent up demand. Consumers are expected to increase their spending on travel and entertainment which has helped drive a shift out of some of the best performing sectors (IE: Technology) in 2020 to the worst performing sectors (IE: Energy and Travel/Leisure). The increase in inflation expectations along with government inquiries into big technology companies have also been weighing on technology stock returns this year. We continue to recommend maintaining a well-diversified portfolio to weather the volatility.

 
COVID-19 infections rates have come down in the U.S. and vaccinations have ramped up in a meaningful way. However, the increased travel this spring and states beginning to re-open and lift restrictions has caused a recent uptick in infection rates. We are also seeing a more meaningful uptick in Europe and Latin America so even with the increase in available vaccines, the various strains of the virus still pose a risk to growth assumptions this year. It will be important for the market to continue to show signs of positive earnings growth and for the economy to continue its expected strong recovery without any new lockdown measures imposed in the second half of the year. President Biden is also proposing a new infrastructure package in a two-part proposal, the American Jobs Plan and the American Families Plan, which could aid GDP growth if enacted this year. However, it will be important to see what tax hikes are in the proposal to fund the infrastructure package and what effects those tax increases may have on corporate earnings.

We continue to be mindful of risks facing the market in 2021 as COVID-19 cases are on the rise again, and stocks and bonds still trade expensive compared to their historical averages. However, central banks and governments continue to provide massive amounts of stimulus that are driving up asset prices. We continue to recommend staying the course with your investment objective and to continue to rebalance your portfolio by selling strengths and buying into weaknesses to adjust to movements in the market over time. We also recommend determining any short-term cash needs that you may be need over the next six months. Creating this cash can help protect against an increase in volatility and short-term moves in the market. We recommend maintaining a more long-term focus on investment goals and objectives, and not reacting to short term up or down movements in the market.