I’ve gotten a lot of positive feedback on yesterday’s post (thank you!) on how we should be kind, to others and ourselves, given the unprecedented and long-lasting conditions we have been fighting. As I thought more about it, I realized it also resonated with one of the key economic issues we are seeing today: the decision by millions of people to simply drop out of the labor force. The headlines today have multiple references to how people are simply choosing not to work and wondering when, and if, that will change.

This will be a short update as I am in the airport headed home from Commonwealth's Founder’s Club conference. As usual, it was a wonderful experience—good company, great activities, and a spectacular setting. But what struck me at this conference, in particular, was the value of personal contact.

My colleague Sam Millette, manager, fixed income on Commonwealth’s Investment Management and Research team, has helped me put together this month’s Market Risk Update. Thanks for the assist, Sam!

My colleague Sam Millette, manager, fixed income on Commonwealth’s Investment Management and Research team, has helped me put together this month’s Economic Risk Factor Update. Thanks for the assist, Sam!

I got a question last week that I thought was excellent: how does climate change do when we apply the same set of crisis tests we did to Evergrande and the great financial crisis (GFC)? It may seem to be a political question—and quite possibly it was intended as such. But in my mind, applying this set of nonpolitical tests is a great way to take it out of the realm of politics, where I have no special expertise, and into the realm of economics and data analysis, where I do. Today, let’s take a nonpolitical look, based on the data, at whether climate change is something that we, as investors, should be keeping an eye on.

I watch sports only occasionally, but in the past year or two, I have gotten increasingly into watching pro football—probably as a result of being bored at home during the pandemic and the drama around the turn of the Patriots dynasty. I have to admit, there are some terrific athletes out there. There’s Brady, of course, but many others as well. It has been great to come back to something I enjoyed as a kid.

September was a bad month for the markets. In the U.S., all three major indices were down. Developed markets dropped, and emerging markets did worst of all. These declines resulted from the weakening of the economic data, driven by the spread of the Delta wave of the virus. Job growth was down, layoffs trended up, and consumer confidence dropped.

After a great start to the quarter in July and August, September was when the storms hit. Here in the U.S., markets pulled back significantly. The Dow declined by 4.2 percent for the month and 1.46 percent for the quarter. The S&P went down by even more for the month, at a 4.65 percent decline, although it gained 0.58 percent for the quarter. Finally, the Nasdaq trailed by even more, at a 5.27 percent monthly drop and a 0.23 percent loss for the quarter. Abroad, international markets were also hit, with developed markets down for both the month and quarter, at 2.9 percent and 0.45 percent, respectively. Emerging markets dropped 3.94 percent for the month and 7.97 percent for the quarter.

Today, I want to apply the analysis we laid out yesterday to the great financial crisis (GFC). The idea is to see whether it would have given us some advance warning of just how bad that crisis got. If so, the analysis might be useful in identifying future crises that are actually worth worrying about.

We are now entering the phase of the market cycle where worries start to proliferate. We’ve already talked about Evergrande, supply chain issues, rising interest rates, and so on—and the risks for all of these things are real. As the situations evolve, though, each of these categories and others will present themselves in different ways. For example, looking at China, we have Evergrande, the demographic rollover there, trade and competition issues with the U.S., and many more. Even as one issue (Evergrande) starts to recede from investor consciousness, others will rise again.