July 2021

Navigating the Bumps

As more Americans became fully vaccinated and COVID cases began to fall, many people felt like they were awakening from a long nightmare. That optimism also was felt by investors. The Standard & Poor's 500 index closed June 30 at a record high and was up 14% for the year at the end of the second quarter. Meanwhile, the Dow and the Nasdaq each rose 12% for the second quarter.

Then, on July 19, the Dow plummeted 725.81 points, its worst drop since Oct. 28, as investors became jittery about a COVID surge that reflects low vaccination rates in many parts of the country and the world. The S&P 500 and the Nasdaq also fell that day. But by the end of the week, the market had recouped its losses.

The recovery from the pandemic probably never was going to be a perfect V, with things getting steadily better after hitting bottom. There have been and will be bumps in the road. But from an investing standpoint, it is important not to focus too much on any single day or even week. Instead, we should focus on what we have seen over time.

First, consider what happened during the pandemic. Although there were sputters, overall the market indices have increased steadily for the last year as the country struggled to come through a pandemic that so far has killed more than 600,000 people in the United States and more than 4 million people worldwide. Throughout the last year, companies have reported strong earnings. And there are signs that there is more good news coming.

During the pandemic, companies showed their resiliency and their adaptability. The ability of companies to reinvent themselves as the pandemic decimated parts of their business models was a lesson in American entrepreneurship at its best. Industries from travel to entertainment to retail that many believed would be fatally damaged by the pandemic largely survived and even thrived. Many companies are posting record profits.

The government's multiple COVID relief efforts also saved many people from financial ruin by flowing funds to state and local governments to continue essential services, by providing programs to allow employers to continue to pay employees, and by offering other kinds of relief, including direct payments to individuals.

People who continued to work during the pandemic found themselves with very little to spend their money on. Malls were closed, travel was severely restricted, entertainment venues were shuttered. As a result, many Americans are sitting on a lot of savings. Some are spending again, on things they did not buy over the last 16 months -- which adds to the profits of companies. And, in light of current low interest rates, some are looking for better returns in the stock market.

There are potential problems, of course. There is concern about inflation. June was the third straight month in which consumer prices rose, and the Consumer Price Index is up 5.4% for the year, fueled by increased consumer demand as people emerge from the pandemic.

But the Federal Reserve so far seems to be taking the position that this CPI rise is fueled mainly by pent-up consumer demand and likely will be transitory. The Fed has managed inflation well thus far, and it has many tools at its disposal to continue to do so.

Of course, no one can predict the future. After all, two years ago few people seriously worried about a virus spreading death and devastation across the world. But that is what happened. That is why it is important to have a plan for investing that does not simply react to market movement after the fact. That plan should reflect your ultimate objectives, timeline and attitudes about risk.

At Peachtree Investment Partners, we believe in investing for the long run, rather than in chasing the current investment trend. We think that, over time, you get the best results by following a carefully considered strategy.

Our strategy involves investing mostly in large U.S. companies with a long history of superior management, market dominance and strong return on invested capital. We also believe in companies that pay a dividend. Dividends reinvested over time can substantially increase your return and make it less reliant on ups and downs in stock prices.

We are always available to address your investment questions and concerns. Meanwhile, we wish you all a healthy and happy summer.

Garry K. Schaefer
Julyl 27, 2021

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