We’ve seen some really interesting things in the financial markets over the course of the last year and this first quarter of 2021. Right on time with Spring, optimism is higher, and it finally feels like the clouds are lifting and the sun is starting to shine again.
In my latest video blog update we take a look at various indicators of market performance, including:
- Latest COVID-19 reporting data
- Returns by index
- S&P 500 significant rebound since late March of 2020
- The U.S. economy
- Specific sectors of our economy that have room to improve
- M2 money supply- consumers have money to spend
As I’ve said in my past, my mission is to provide meaningful education so you can make excellent financial decisions. If you have any questions, please contact me directly.
Transcript
Hey, everybody. Doug Pardieck with Talon Wealth Strategies. Today is March 31, 2021 and I’ll give you a six minute market updated, economic update and what our outlook is for the coming year so stay tuned all the way to the end and let’s get going.
We all know this chart here is showing you the pandemic, looking at the infection rate of COVID-19 and the death rate it got really bad in December/January just a few months ago. But, we’re seeing really good improvements and one reason we’re seeing improvements is the vaccinations are begin rolled out. The population that is at age 65 and old, that was the population that was most impacted by COVID-19. They had the highest rate of death. So, you look at all the deaths related to COVID-19 and 82% of them were in the population group of 65 and older. Luckily that population group the vaccines have been dispensed and a lot of them are vaccinated so that is giving us optimism and hope that we’re getting around the corner, we’re not out of the woods yet. We’re seeing a light at the end of the tunnel but a ways to go. There is reason to be optimistic.
Let’s take a look and see how the stock market has done looking back. The S&P 500 had a positive month here in March and over the last year up almost 51%. The Dow Jones Industrial Average, that’s 30 stocks, big blue chip companies here in the United States. Over the last month they’ve done very well up almost 7%, but over the last year up 48%. And then you look at the NASDAQ. It did have a negative month here in March, but look at that return from a year ago, March 30, 2020 to March 30, 2021 up almost 68%. Now, the NASDAQ has a lot of technology companies, internet communication types of companies, large growth and that’s the sector that did the best coming through the pandemic.
Now we’re starting to see a rotation from the large growth tech companies over to those other sectors that have not rebounded so strongly during the pandemic. So we’re looking at opportunities here to rotate into sectors that are not quite as expensive or have done as well.
Here’s a look back over the last three years. This is the S&P 500 so we’re now close to 4,000 on the S&P. We did have that 40% drop and then boom, from the bottom over 70% positive return since March 23, 2020. And from the peak before the pandemic hit to the most recent peak today, the stock market is about 16% higher even despite the big drop off of 34%.
Where do we think the market can go from here? That’s a really good question. Nobody knows the exact number on this but let’s look at history and see what’s happened in the past. The blue is the first year coming out of a 30% downturn. The orange is the year number two. The average if you look at these historical returns in the past coming out of a 30% downturn, the stock market does have a nice year one, what is the average around 46%. But in year two, the average return is 20%. And do we think the stock market this time has room to run in year two? We do think so.
Take a look at this. When you look at the stock market the S&P 500 is a good representation, the top five stocks have done the most of the rebound through the pandemic. But the other 495 stocks are only up 9% during that same time period. So, we do think there are stocks that are still at a better value versus these large growth tech stock that are really expensive. When an investor comes to me and says, “Hey, I want to put some more money into my Roth IRA, but is now a bad time to be buying?” Well, those growth stocks that don’t have very good earnings, but did very well. Yes, we may want to stay away from those. Be leery of those expensive stocks. But there are a lot of other sectors – airlines and energy and so on that are still trading at a lower value. They do have room to run, especially when the economy opens and we do see a rebound in our U.S. economy and in the global economy.
Let’s take a look at the global economy. It had a sharp drop off, historical drop and then it had a pretty decent rebound. But we have a long way to go before we get back to the long-term trend growth. Where is it going to go? Well, we think that the second half of this year starting this summer the economy has room to really accelerate and that will be good for people spending money. That will be good for corporations and businesses opening their doors, getting revenue, earnings going up, profits going up and that could also be good for your stock prices in your portfolios.
Here are some areas of the economy that are still way off what they were pre-pandemic. You look at airline traffic and eating out and just travel and hotel occupancy. These are still well off where they were back in early 2020, so still a lot of room for improvement. And there’s a lot of money out there.
The M2 money supply jumped up 25% which was a historical jump. So money flowing into cash accounts, savings accounts.
Money sitting on the sidelines just waiting to be spent, to be infused into our economy. It’s at a historical high and that’s not accounting for the recent stimulus money that came out into the U.S. consumers checking and savings here in March 2021. So, now there’s even more money. As soon as we start feeling more comfortable about spending money, about traveling, that’s going to be really good for the economy and that does give us some nice tailwinds for the stock market. We are cautiously optimistic about the economy and we do think the stock market has room to run. We do think it’s very important to stay diversified. You just never known when another black swan event, something unexpected is going to come out of left field and impact the economy, impact the stock market. We do expect volatility in the stock market but we do think there’s more tailwinds than there are headwinds.
That’s a lot for a six minute video. Hopefully, that was helpful. Call me if I can be of any service and have a wonderful spring and hopefully we’ll see you soon. Take care.