Pressing Reset
As the current year wraps up and we head into a new year, it’s a common practice to set resolutions for the year ahead. In a sense these resolutions feel like a way to press reset and make positive changes. Over the course of the last year, the economy and markets have essentially been pressing the reset button in many areas that weren’t functioning as they should. Examples that come to mind are the artificially low interest rates we’ve had for many years, unprecedented fiscal stimulus, inflation, stretched valuations on the stock and bond market, out of control real estate prices, and more. An economic and financial reset comes from a combination of markets adjusting on their own along with policy makers attempting to navigate the best way to return to more normal and healthier levels. Of course, this is much easier said than done, especially with many years of government stimulus to fuel the economy, and conflicting views on political priorities.
Below are some examples of economic conditions that are in the process of a reset.
Interest rates are rising quickly but still well below historical levels:
Inflation at 40-year highs:
Unprecedented federal stimulus:
Real estate affordability – In just three years the annual income needed to afford a median-priced home in the US went from around $60,000/year in 2019 to over $107,000/year currently, a 78% increase:
Over the course of this next year, we’ll likely continue to see this reset unfolding, as it isn’t as quick as rebooting your computer when it’s not functioning normally. However, there is no doubt this reset, though painful, is necessary. I feel confident we will get through this challenge as markets have proven over and over to be resilient through many difficult periods, and we will return to a healthier economic and market environment. I’m hopeful we’re closer to the end than the beginning as markets are forward looking and start recovering well before the bottom of the economic pain.
Here's to high hopes that the discomfort of pressing reset will bring better times for all. Merry Christmas and Happy New Year!
As always, I’m here if you would like to evaluate your investment strategy or financial plan in light of the reset we are experiencing, email me at advisor@blakegallion.com.
