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In the Market & Economic Outlook, we separate the relevant from the noise, to bring you timely content that helps you on the path to and through retirement!
STATE OF THE MARKETS (S&P 500 +9.01% YTD through 4/08/21)
Stocks climbed over 5% in the first quarter as new COVID-19 cases dropped dramatically (down over 75% from the previous six-week period), vaccinations became widespread (181 million doses delivered and over 93.6 million having received their first shot), and the economy kicked into high gear. Additionally, Congress passed a $1.9 trillion stimulus bill that should fuel more spending and growth for the rest of 2021.
Some investors have been concerned with the rapid rise in the 10-year Treasury yield, which went from around 0.95% late last year to 1.7%, in just a few months this year. Many worry that inflation is coming because of the massive amount of government spending that has occurred.
It is important to note that much of the price increases came from shortages because of the lockdowns and could be a temporary increase. The quick rise in interest rates actually signals that the economy is growing again, and that future growth could be much stronger.
We expect stunning corporate earnings in 2021, rising perhaps as much as 25% this year. While consumers will spend in a big way this year and fuel most of the earnings growth, corporations are spending again too. We expect higher spending to fuel additional earnings growth well into 2022, which is a good sign for stocks.
ECONOMIC UPDATE
The economy is now spring-loaded to takeoff. Consumers have $3 trillion in savings to spend and more checks coming from the government. This could lead to 8-10% GDP growth in 2021, which would be the highest growth rate in 35 years.
Pent-up demand is off the charts, household wealth grew 10% to $130 trillion (inducing confidence) and everyone is eager to get back to living their lives – travel, eating out, etc.
We are already seeing airline reservations accelerate, restaurant dining pick-up, and those companies whose stock prices are most sensitive to the economy (banks, industrials, energy, consumer discretionary) are starting to recover.
INVESTMENT THEMES
In addition to opportunities that exist broadly in the current economic and market climate, there are several areas we are emphasizing in client portfolios:
DIVIDEND STOCKS – IDEAL IF YOU SEEK A GROWING STREAM OF INCOME
Since interest rates are so low, it’s nearly impossible to find an investment that provides a growing stream of income right now. Many dividend stocks have been unloved over the last year as investors have favored high tech companies.
The combination of value and a track record of increasing dividend income is why dividend paying stocks are the foundation of our clients’ portfolios. Plus, dividend stocks are a nature hedge against inflation and taxes.
CYCLICAL STOCKS
Now that the U.S. economy is reopening and economic activity is accelerating, cyclical stocks (which are companies that are closely tied to the economy), are performing much better than the momentum and growth stocks that everyone crowded into last year.
We expect that money will to continue flowing out of the high-flying technology darlings and into banks, industrials, energy, and consumer discretionary companies – otherwise known as cyclicals. Cyclical stocks remain very undervalued and neglected, but with the economy now entering an expansionary phase, those companies should be more attractive for investors.
BOTTOM LINE
The economy is spring-loaded to takeoff now that COVID-19 cases have dropped dramatically and vaccinations are widespread. America is opening back-up, pent-up demand is off the charts, and life is gradually getting back to normal. We could be witnessing the fastest growing economy in 35 years, fueling growth in the stock market and higher interest rates.
As kids are starting to go back to in-person learning, Dave is also excited to be back in the classroom teaching his investing class at Seton High School.
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Disclosure:
The views outlined in this newsletter are those of True North Retirement Advisors (TNRA) and should not be construed as individualized or personalized investment advice. Any economic and/or performance information cited is historical and not indicative of future results. Economic forecasts set forth may not develop as predicted.
Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly, will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for a given client or portfolio.
Investing in stocks includes numerous specific risks including the fluctuation of dividend, loss of entire principal and potential illiquidity of the investment in a declining market. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond and bond mutual fund values and yields will decline as interest rates rise and bonds are subject to availability and change in price.
Any questions regarding the applicability of any specific issue discussed above should be addressed with TNRA. All information, including that used to compile charts and/or tables, is obtained from sources believed to be reliable, but TNRA has not verified its accuracy and does not guarantee its reliability.
Moreover, you should not assume that any discussion or information contained in the newsletter serves as the receipt of, or as a substitute for, personalized investment advice from TNRA or from any other investment professional. To the extent that you have any questions regarding the applicability of any specific issue discussed above to your individual situation, you are encouraged to consult with TNRA or the professional advisor of your choosing. All information, including that used to compile charts, is obtained from sources believed to be reliable, but TNRA has not verified its accuracy and does not guarantee its reliability.
