It’s been a year of stock market volatility and economic uncertainty. What’s next?

As the year comes to a close, many investors will be reviewing balances in 401K and other personal accounts. Throughout the covid pandemic there has been significant volatility in stock and bond markets.

Is this volatility here to stay?

Global equity markets started off well in 2021 before seeing mid- and late-summer losses.

After a recovery in early October, the Dow Jones Industrial Average has increased 16% for the year and the S&P 500 Index has returned over 20% year-to-date, while the tech-heavy NASDAQ Index is up more than 17%.

International stocks have not fared quite as well with the broad based EAFE Index up more than 10% while emerging markets are flat.

Interest rates have remained near all-time lows and overall bond returns have been moderate. As global economies move out of the Covid pandemic, much of the fiscal and monetary stimulus will be removed and economies will be forced to stand on their own again.

While stock market volatility is ever-present, increased economic uncertainty exists and could cause higher than normal swings in stock prices.

The U.S. economy has fared well coming out of the covid crisis and corporate earnings have been solid. As vaccination rates have risen and businesses and schools have re-opened, the U.S. economy has steamed ahead. GDP growth has been in the mid- to high-single digits for 2021 after a decade of growth rates around 2%-3%.

While GDP growth has been high in 2021, there are potential headwinds with higher inflation, supply chain issues and a shortage of labor. Energy prices and wages are up and will contribute to higher inflation moving forward. The unemployment rate in the U.S. has declined but is still short of pre-pandemic lows and the labor participation rate is lower, meaning fewer people are in the workforce.

Other potential challenges exist.

The Federal Reserve Bank is likely to begin “tapering” soon, which will result in less monetary stimulus to the U.S. economy. The “Fed” is also considering interest rate increases later next year. Moving forward, there is likely to be a reduction in the amount of fiscal stimulus, or “rescue” packages, from the U.S. Congress compared to 2020 and early 2021.

There is also uncertainty surrounding future U.S. tax policy and the balance of power in the U.S. House and Senate before next year’s mid-term elections. Some tax proposals include an increase in dividend and capital gains tax rates which could be negative for stock prices.

Although there has been a significant rise in global government debt, U.S. consumers have healthy balance sheets, indicating some of the stimulus money has been saved or used to reduce debt. The willingness and ability of the U.S. consumer is a key driver of both U.S. and global stock prices.

With increased stock market volatility and economic uncertainty, it is a good idea to review your investment portfolio regularly. Is your portfolio prepared for all possibilities? U.S. stock markets are near all-time highs and interest rates are near historic lows.

Is it time to rebalance your portfolio? When markets are volatile, investment allocations can become out of balance and may need to be adjusted.

Is your portfolio prepared for a post-covid economy and current economic uncertainty?

Chris Walden is a CERTIFIED FINANCIAL PLANNER professional and a member of Financial Planning Association of Greater Kansas City. He is an Advisor with Heartland Capital Advisors, LLC, a Registered Investment Advisor in Independence.