August 28, 2021
From the desk of Anthony Sandomierski, CPA/PFS, CFP®, MS (Taxation)
I hope everyone is enjoying the last few weeks of summer! I wanted to give you all a quick update as
to where we see financial markets.
Valuation – The stock market has posted solid gains so far this year as the economy has started to
rebound from COVID-19, earnings have been strong, and fiscal and monetary policy have been very
accommodative. Projected earnings on the S&P 500 index are close to about $200 and the index is
currently trading around $4,450. This equates to an earnings yield of around 4.5% which is historically
low but we believe to be justified in a low interest rate environment. The 10 year treasury yield is
currently around 1.35% which is very low. Bank interest is practically non-existent. This is supporting
the case to own equities over the long-term as there is just about “no alternative”. We are still big fans
of municipal bonds because of the tax-free interest they generate, which is very powerful for high
income earners as well as seniors taking distributions from their accounts.
Things We Are Watching:
1) COVID-19 – The Delta variant has caused a significant uptick in cases over the past few
months. Further shutdowns could hinder economic growth which the markets could react
to. If this happens, we could be looking at buying opportunities we’ve been waiting for.
2) Fiscal Policy – Congress is currently working on a budget proposal as well as an expansive
infrastructure bill. If these pass, this could be very stimulative to the economy. Large
deficit spending could become an issue down the road and could lead to future tax
3) Monetary Policy – The Federal Reserve has taken a very accommodative stance over the
past year and a half to support economic growth. Interest rates have been kept very low to
incentivize spending. The Federal Reserve has expanded their balance sheet since 2008
with bond purchases and they have announced a slow “tapering” off of these purchases
which the market hasn’t reacted much to.
4) Inflation – Inflation metrics have increased significantly over the past year but forecasts are
showing a return to “normalcy” over the long-term which is what we expect.
5) Earnings – We believe that earnings as the ultimate long-term driver of stock market
growth. If companies’ earnings continue to increase, that justifies increases in the stock
market over the long-term. Earnings forecasts look strong as of now.
Outlook – The stock market looks pretty fairly valued right now. Any major sell off should be seen as
a buying opportunity (always think the opposite of your instincts!). International stocks look cheaper
than US stocks but we think they are right about where they should be valuation wise. Value stocks
look cheaper than growth stocks but we wouldn’t say they are a “screaming buy”. We tend to favor dividend paying stocks/funds for clients who need income from their accounts, especially in the low interest rate environment we are in. We think municipal bonds are pretty attractive because of the low rate environment and the potential for future tax increases.
Feel free to reach out to me with any questions!
I’m happy to help. My direct line is (732) 681-1384 and my email is firstname.lastname@example.org.
Anthony Sandomierski, CPA/PFS, CFP®, MS (Taxation)
Direct: (732) 681-1384