Short-term bonds – and short-term bond funds – may grow more attractive due to their ability to earn incremental income above cash and cash-like investments without much exposure to the risk of rising rates. Slow and steady interest rate increases stand to benefit short-term Treasuries and corporates, and it seems unlikely that the Fed will quicken its pace on rates any time soon.
While the physical effects of the back-to-back storms will certainly pose a challenge to municipalities, a major impact on the muni market is not anticipated due to the speedy federal response to the natural disasters as Washington is proving to be a willing partner in the recovery effort. There will still be ample demand for munis even if tax rates drop.
We are currently facing manmade and natural events that have the potential to disrupt markets: hurricanes, a potential government shut down, an impending deadline to raise the federal debt ceiling, and North Korea’s escalating nuclear threat to its Asian neighbors. Given that September is typically the worst-performing month of the year, it makes sense for investors to be cautious about their risk exposure.