Market Pulse: A Summer Snooze

David Vomund

There wasn’t much to cheer in the stock market in August nor in the bond crowd, and September is historically weak as well. After a good run since last October a quiet stretch for stocks with some profit-taking was to be expected. Investors have a valid concern for the economic outlook and interest rates. I’ll start with the latter.

Long-term rates have been rising, touching a level not seen in 15 years. There are a few reasons, a major one being an increase in the demand for credit. Literally trillions in commercial loans will need to be refinanced or paid off. In the third quarter alone the Treasury will issue $1 trillion in debt to fund ongoing deficits.

Inflation, while well down by any measure from its peak, is still a problem most Americans see at the grocery store, the gas station, and in their monthly bills. Never mind macro data, “core” this and “nominal” that. The Fed sees prices, too, and members said there are “upside risks” to inflation. The costs of food, energy and housing are the largest components of inflation and they are rising.

The financial media and Wall Street strategists are overly focused on interest rates, often making much of small changes. What they seldom mention is that the much-quoted yield on the ten-year Treasury is irrelevant to most investors. If they are lucky the yield will offset inflation and provide a small positive return. But no one can build wealth by earning 4.25 percent in the ten-year Treasury note. Middle-aged and especially younger investors should take note. Only in stocks can they earn a good long-term return. Through thick and thin — the great depression, umpteen recessions, Vietnam, Korea, World War II, mid-east wars and double-digit inflation — the answer has been the stock market. So invest for the long term.

An NYU professor recently made that case: $100 invested in short-term Treasurys in 1928 would be worth $2,141 at year-end 2022. Invested in corporates it would be worth $46,379. In stocks $624,534. That is not a typo.

The stock market can hold its own in an environment of rising rates and sub-par or even token growth. Not great, but okay as investors start to anticipate better days. That is always how it works. Stock prices reflect the outlook for future economic conditions, interest rates and profits. Investors look forward. Those who correctly anticipate better times and growing profits will reap the rewards.

David Vomund is an Incline Village-based Independent Investment Advisor. Information is found at or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial advisor before purchasing any security.

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