The stock market endured a choppy September. The S&P 500\nslid for the month, nearly wiping out all of Q3\u2019s gains. Many analysts cited\nthe debt ceiling drama and\/or economic issues emerging from China as causes for\nthe volatility, but I generally refrain from assigning causes to short-term\nvolatility. The market may be responding to those issues, or there could be\nother risks and factors in play. Over short time frames, no one truly knows. <\/p>\n\n\n\n
Longer-term, however, I do think there are a few budding\nrisks to keep an eye on. So as not to bury the lead, I believe the U.S. economy\nis in a strong enough position to overcome these headwinds. But I also think\ninvestors should be mindful of these risks while also ensuring you are managing\nrisk appropriately in your portfolio. The tools we use here at Zacks Investment\nManagement range from proprietary stock screens, to ongoing earnings and\nearnings estimate analysis, to diversification and constant portfolio\nmonitoring. As you consider these three risks to watch in the coming year, also\nconsider how your portfolio is positioned to respond.<\/p>\n\n\n\n
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Never Panic! Focus on Key Data and Fundamentals<\/a><\/strong><\/p>\n\n\n\n As your investing concerns may fluctuate throughout this\nyear, don\u2019t let the media and inflation concerns pressure you into making\nimmediate financial decisions. The key is research \u2013 instead of panicking in\ntimes like these, remember to not time the market! Now is the time to focus on\nfundamentals, hard data, and quality that can positively impact your\ninvestments in the long term. <\/p>\n\n\n\n To help you do this, I am offering all readers our\njust-released Stock Market Outlook report. This report contains some of our key\nforecasts to consider such as:<\/p>\n\n\n\n If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!\u00a0 Risk #1: Supply Chain\nConstraints Meet Rising Energy Prices<\/strong><\/p>\n\n\n\n Strained supply chains continue causing shortages of product\ncomponents and putting price pressures on raw materials and finished goods. It\ncurrently takes about 80 days to transport goods across the Pacific Ocean,\nwhich is twice as long as pre-pandemic and is creating many problems for businesses\nentering the holiday shopping season. To boot, once cargo ships make it to\nmajor U.S. ports, they are often stalled there for days or even weeks. The\nproblem is significant enough that some major U.S. retailers like Walmart, Home\nDepot, and Costco have resorted to chartering their own cargo ships to move\ngoods \u2013 a very costly process.2<\/sup> <\/p>\n\n\n\n As supply chain issues persist, rising energy prices are\nserving as a crosswind on businesses, applying cost pressures at seemingly just\nthe wrong time. Crude oil prices are up over 60% this year, natural-gas prices\nhave doubled over the last six months, and coal prices are at record.3<\/sup>\nFor businesses that rely heavily on energy, the cost of production is moving\nhigher. <\/p>\n\n\n\n The combination of supply constraints and rising energy\ncosts are putting the squeeze on corporate profit margins, at least in the\nshort-term. S&P 500 company profit margins are estimated to have fallen\nfrom 13.1% in Q2 to 12.1% in Q3.4<\/sup> The risk here is that rising costs\ncontinue to pressure profit margins to the point that companies end up earning\nless or passing along higher costs to consumers \u2013 or both. <\/p>\n\n\n\n Risk #2: Negative\nEarnings Revisions<\/strong><\/p>\n\n\n\n Related to risk #1, the downstream effect is that\ncorporations must respond to cost pressures, supply chain disruptions, and\nlabor\/material shortages by revising earnings forecasts lower. This can create\nuncertainty in the earnings outlook, particularly given the lack of visibility\nwith respect to the duration of inflationary pressures.<\/p>\n\n\n\n According to analysts at\nZacks Investment Research, the current earnings picture remains strong, even\nthough the growth pace is expected to decelerate significantly from the first\nhalf\u2019s breakneck pace. What we don\u2019t know at this stage is whether the\nincremental change in the earnings outlook over the coming weeks, as reflected\nin earnings estimate revisions, will be positive or negative. This factor will\nbe watched closely as companies start reporting earnings.<\/p>\n\n\n\n Risk #3: Disorderly\nManagement of China\u2019s Real Estate Bubble<\/strong><\/p>\n\n\n\n The downfall of the Chinese property developer, Evergrande, caused\na stir in the global markets in September. Issues with China\u2019s real estate\nmarket have been known for some time. Evergrande racked up more than $300\nbillion in liabilities (2% of China\u2019s GDP) and has some $37 billion in\noutstanding debt due within the next year. They have already missed $40+\nmillion in dollar bond coupon payments due, and Chinese luxury developer\nFantasia Holdings Group also missed a $206 million bond payment just recently.<\/p>\n\n\n\n For now, it appears increasingly likely that the Chinese\ngovernment will not be stepping in for a full bailout, instead of allowing\ninternational investors to take losses while overseeing an unwinding of the\ncompany. This outcome seems to be favored by global markets \u2013 it shows that\nChina is no longer willing to prop-up failing enterprises and is instead\nallowing a market-based outcome.5<\/sup> In short, an economic \u2018hard\nlanding\u2019 does not appear likely, but new twists and the possibility of a larger\ncredit event are still possible, making this risk worth watching in the coming\nmonths.<\/p>\n\n\n\n Bottom Line for\nInvestors<\/strong><\/p>\n\n\n\n Perceived headwinds have been building in recent weeks, and\nI think it could result in higher levels of volatility in Q4 and beyond. In my\nview, however, these risks and perceived headwinds are likely to be fleeting \u2013\nsupply chain constraints should ease in coming months, moderating demand should\ntake pressure off of energy prices, corporations should be able to navigate a\nfew more months of price pressures, and China is not likely to allow a crisis\nto unravel. I believe any lost growth in the coming months will simply be\npushed to 2022, not lost altogether. <\/p>\n\n\n\n So, as you keep in mind these risks to watch\nfor the rest of the year, remember to focus on the long-term. This requires\nthat you stick to the facts and hard data to positively impact your\ninvestments in the future. Here at Zacks Investment Management, we\nmanage client portfolios based on investment goals, and we drive our\ndecision-making process based on research. <\/p>\n\n\n\n
IT\u2019S FREE.\u00a0Download the Just-Released November 2021 Stock Market Outlook<\/a>1<\/a><\/sup><\/strong><\/p>\n\n\n\n