It’s more of a re-start than a typical recovery… Seems like a long time ago with all that has happened, but the economy back in early 2020 was pretty healthy. With a coordinated global economic shutdown in response to Covid-19 coupled with the divisive political and social environment we experienced in 2020 (and still do), it’s easy to get caught up in the negatives.  But both distant and recent history shows projecting these negative (and sometimes fearful) feelings onto your money and the stock market can be dangerous.  There have always been and will always be reasons you could be fearful and not want to invest.  It’s not easy to remain calm and sift through the deafening noise that bombards us daily. The market is at all-time highs and a common concern we hear is that the next leg has to be down…. but that doesn’t necessarily have to be the case.  Though the future is unknown, there are several reasons to point to that indicate otherwise.

• Re-opening (re-starting) the global economy: This is by far the biggest stimulus the economy can have by simply allowing businesses to open and operate.  Airline and travel data is showing that people are moving about.  In fact, Uber recorded it’s largest bookings in a month… ever, in March 2021.  Despite some areas of the economy not seeing much disruption in spending, there is a lot of pent-up demand with consumers over the past year.  Remember: 70% of economic GDP is made up of consumer spending and the mobility data is trending towards positive growth.
• Immunity?: As of April 2021, per the CDC & US Bureau of Economic Analysis data, it is estimated that almost 75% of the American population has the Covid-19 antibodies, whether through having had the virus or vaccination.  (see chart below).  This is a wonderful thing for the health of our population and the confidence to go about our lives.
• Fiscal response: We think people are underestimating the fiscal response that Washington has unleashed.  Despite a smaller drop in economic GDP in 2020 as compared to the 2008 Global Financial Crisis, the fiscal response in 2020 has been much swifter and greater in magnitude.  Add this to the massive fiscal response with the economy re-starting as opposed to a historical re-covering, and we should see very nice economic growth and company earnings over the next 6 months.
• Low rates: Despite a recent uptick in interest rates, they are still very low by historical standards and not expected to rise dramatically as the FED has indicated many times they plan to keep them low for longer (projected until 2023.)  This is normally a positive sign for stocks as cash at the bank isn’t paying anything and low and rising interest rates aren’t a good environment for bonds.
• Housing: Most of us are aware that the housing market continues to boom. Home prices continue to climb, while people are buying houses, land, and second homes at record paces.  As the economy continues to recover, supply is low, and rates remain low, so this trend should continue.

 

“Looking back, there are a number of things that pushed the market to this point. Technology and communication helped the world adjust to shutdowns, big box stores stayed open, the government disbursed trillions of borrowed dollars, a vaccine was invented in less than a year, the money supply exploded, and the FED cut short-term interest rates to roughly zero and committed to keeping them there. Because of this, profits have soared. With real GDP growth of 6% + this year and S&P 500 earnings expected to grow by 27%, or more, we think stocks will easily bust through our original target by year end and so we are raising our year-end target to 4,500, which is 7.5% higher than the Friday (4.16.21) close….”  (Brian Wesbury, Chief Economist with First Trust)

“Based on our latest data, policymakers, investors, and chief executive officers should prepare for a coming economic boom as the real economy recovers and enters expansion this year…. Executives’ robust assessment of economic conditions, revenues, earnings, hiring, compensation, and capital expenditures over the next 6 months underscores our position that the US economy will experience a boom in 2021 that will likely unleash the strongest  period of American growth since the late 1980’s and quite possibly, the post-World War II period.”         (Joe Brusuelas, Economist with RMM LLP)

“As Jamie Dimon said in his letter to investors released this week (week of April 12^th), because of massive stimulus and pent-up demand from the pandemic, the US is looking at potentially historic acceleration in economic growth over the coming quarters, and that growth should lift those companies in cyclical sectors most, but it should also create a rising tide that helps all risk assets (including tech).” (The Stevens Report)

As tempting as it is, and with no shortage of reasons for it, don’t let the heightened fear and anger seep into your market outlook (or any part of your life). Again, no one knows much for sure in this business, but when looking at the things that matter, it seems to be a pretty good outlook for now. There are concerns waiting for us like inflation and addressing some of the long-term effects of borrowing for stimulus but worrying about that now doesn’t do anyone alot of good.  And these concerns are an even louder cry for staying invested in stocks. We will continue to keep our eyes on the horizon, and most importantly, your goals.

If you have any questions or concerns, please don’t hesitate to reach out.