Sometimes my wife has to remind me to lower my expectations, especially when I’m ordering a steak. I am naturally optimistic and have high expectations, but sometimes my expectations are unrealistic and I need to dial them back.
This week market analysts started dialing back their expectations for the economy for the rest of 2021. Argus Research Company lowered their GDP forecast by 11%. Goldman Sachs lowered its forecast for the remainder of the year because of a “harder path ahead” for consumer spending.
There are reasons for the lowering of expectations besides COVID.
America, like a drug addict, is struggling to wean itself off of government stimulus such as mortgage forbearance, renters’ eviction protection, and supplemental unemployment benefits. All of these are expiring soon or have already expired in the last few days.
The Mortgage Forbearance Program allowed people affected by COVID-19 to not pay their mortgage payments for up to a year. Nearly 1.6 million Americans enrolled in this program and half of them are scheduled to start making payments again at the end of October. We will see how many of them were smart with their money and can restart making their biggest monthly payment.
The end of the Eviction Moratorium affects a lot more Americans. This program blocked landlords from evicting renters who aren’t current on their rental payments. This program helps renters but hurts landlords. New York extended the moratorium in its state, but the Supreme Court blocked a national extension. There are an estimated 11 million renters who are behind on their rent and over 4 million that are so far behind they could be evicted.
The Federal Supplemental Unemployment benefit expired on Labor Day (9/6/21) for the remaining states who hadn’t opted out of the program. Economists estimate over 10 million people were still receiving supplemental unemployment and have lower unemployment benefits now.
It will be interesting to see how much spending is affected by all of these government stimulus programs ending at nearly the same time. The companies we invest in need Americans with available cash to buy their products. Consumer spending, which is what we call purchasing of individual American families, make up nearly 70% of the US economy.
Though many Americans will be negatively affected by the ending of these government stimulus programs a whole lot more Americans are doing well. I think we could have some short-term bumps in the road, but I expect the US and international economies to continue to be positive. Even though it’s losing momentum I still feel like it’s the best option for returns, especially with the current bank rates.
If the current market was a steak, it would be a sirloin. Not a filet mignon or ribeye but not a hamburger steak either. Lowering our expectations to the reality of our situation, whether the stock market or steak, helps a lot.
Have a blessed week!
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IAA and Steadfast Wealth Management are separate entities from LPL Financial.