Yesterday, I appeared on Fox Business’ Morning with Maria to discuss the markets, inflation, consumer spending, and what’s ahead for the fourth quarter. Listen in to hear more.

After inflation, which we talked about yesterday, the next biggest set of questions I get focus on what the effect of the new tax law will be and whether the higher tax rates in it will derail both the economic recovery and the market. People generally make a good argument about how it will hurt confidence, take money out of consumer and business spending and investment, and generally take us back to a state of depression. I understand the arguments. But two things are missing that would make them convincing: facts and context.

One of the most urgent and consistent questions I have been getting recently is around inflation. With the headline numbers high—and they are high—the concern is that we are moving back to the 1970s and that inflation will stay at the current 5 percent or run even higher. That conclusion seems reasonable, given the large federal deficit and spending over the past couple of years. When combined with the signs of slowing growth, it could point back to stagflation. The 1970s are calling. Maybe disco will come back as well?

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!

August was another great month for the financial markets. Here in the U.S., the markets continued to hit new highs, with the Dow up by 1.5 percent, the S&P up by more than 3 percent, and the Nasdaq up by more than 4 percent. Abroad, developed markets also did well, going up by 1.76 percent. Emerging markets bounced back significantly at month-end with a gain of 2.65 percent.

August was another very good month for the financial markets. In the U.S., both the Nasdaq and the S&P 500 showed material gains, while developed markets also did well. On the medical front, the virus continued its spread. There are signs that the rising medical risks are starting to appear in the data, with consumer confidence dropping significantly in August.

One of the key indicators I follow is consumer confidence. With more than two-thirds of the economy based on consumer spending, confidence is the key determinant of growth, even more so than jobs. Yes, jobs are important—you can’t spend money if you’re not making it. But to spend the extra money that kicks growth up another notch, you need to have the job and feel confident enough to spend.

Yesterday, in response to advisor requests, my post summarized some of my high-level thoughts about the state of the economy. To recap my take briefly, the economic risks of the pandemic are largely in the past. The economy is growing, and markets are strong. Given this environment, the risks of governmental action (notably the infrastructure spending bills) and the Fed’s policy accommodations are now bigger worries than the pandemic. In the face of these risks, can our economic growth continue? My base case is that we’re getting closer and closer to normal. So, today, I want to address how we can invest in a growing economy that faces risks of inflation, higher interest rates, and government policy changes.

Recently, I’ve received several requests for a high-level overview of the economy. As a blog post, this analysis is necessarily short on details, but I hope it provides a big-picture look at what I see happening in the current economic and market environment.