China’s recent regulatory crackdown and the consequent impact on its financial markets have caught the attention of worldwide media and investors. (A recent post by my colleague Peter Roberto explores the regulatory backdrop.) Given the current environment, I’ve been receiving numerous questions asking if now is the time to double down on Chinese equities. Potential investors are wondering if the recent bounce in some of the hardest-hit stocks could be a sustained run. My belief is that, over the shorter term, headline risks remain elevated for Chinese equities. In the long term, continued economic growth in China may present attractive opportunities for value creation. To avoid potential landmines, however, active management is critical.

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!

There were a number of important economic data releases last week, with a focus on consumer and business confidence and the August employment report. The employment report showed that the pace of hiring slowed during the month, as rising medical risks served as a headwind for faster job growth. This week will be relatively quiet, with only two reports due to the holiday-shortened schedule.

Brad here. One of the key pieces of news to hit my desk this week was that the social security trust fund was projected to run out of money a year earlier than expected. Not only will this affect everyone who is retired now, but it will also affect those who plan to retire around the time that money runs out (like me). So, it’s personal. That said, I went to our Advanced Planning group for guidance. David Haughton, advanced planning consultant, prepared a summary on what is happening—and what isn’t. Thanks, David. While I am still not happy about the news, I appreciate the clarity and context he provides around the facts of the situation.

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.

Among last week’s important economic data releases, the focus was on July’s existing home sales, durable goods orders, and personal income and spending reports. In a positive sign for the overall economic recovery, personal income and spending showed continued growth during July. This week will be busy once again, with releases that include a look into consumer and business confidence in August, the August employment report, and the international trade report from July.

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.