It’s Spring And Economic Recovery Is In The Air
Last week, the Bureau of Economic Analysis reported the U.S. economy grew at a 6.4 percent annualized rate for the first three months of 2021. While that’s good news for companies and workers, asset managers are checking their expectations.
The stock market reflects what investors think may happen in the future. During the past year, major U.S. stock indices moved higher as investors anticipated vaccines and economic recovery, reported Patti Domm of CNBC. Since its March 2020 low, the Standard & Poor’s 500 Index has gained 88 percent.
Amidst strong signs of recovery in the United States, some asset managers are positioning for “inflation and tapering,” according to a source cited by Naomi Rovnick of Financial Times. “Investors have topped up their cash holdings at the fastest rate since March 2020 as debate intensifies over whether stock markets will continue rallying now the U.S. economic recovery from the pandemic is firmly under way.”
Investors were feeling cautious last week, but there were no signs of tapering, which occurs when the Federal Reserve begins to buy fewer bonds. On Wednesday, the Fed left its supportive policies in place.
When the Fed begins to change course and rates move higher, equity market valuations may adjust. “The main worry for stocks is that higher bond yields translate into lower equity valuations. Higher yields reduce the current value of future profits and therefore can reduce earnings multiples,” reported Jacob Sonenshine of Barron’s.
Profits were strong during the first quarter of 2021. U.S. companies continued to report exceptional earnings last week. With 60 percent of firms in the Standard & Poor’s 500 Index reporting, the blended earnings growth rate was 45.8 percent. More than 8 of 10 companies have reported better than expected earnings, reported John Butters of FactSet.
Major U.S. stock indices finished the week flat to down. Rates on 10-year Treasuries edged higher.
(The one-year numbers in the scorecard below remain noteworthy. They reflect the strong recovery of U.S. stocks from last year’s coronavirus downturn to the present day.)
Take a guess: electric vehicles, household robots, wild elephants, centenarians, or streaming services per household?
The world’s 65 and older population is growing rapidly.
According to the most recent population estimates from the United Nations, “…1 in 6 people in the world will be over the age 65 by 2050, up from 1 in 11 in 2019. The latest projections also show the number of people aged 80 or over will triple in the next 30 years. In many regions, the population aged 65 will double by 2050, while global life expectancy beyond 65 will increase by 19 years.”
Longevity deserves more thought than it often receives. It is an essential part of every financial and retirement plan, influencing savings goals, investment choices, and retirement income levels. Yet, people often underestimate their potential longevity.
In the United States, the average life expectancy at age 65 is 19 years, according to the Centers for Disease Control (CDC). Consequently, many people assume they should plan to live to age 84. However, the CDC estimate is an average. Half of 65-year-olds will live beyond age 84.
When it comes to planning for the future, having above average expectations for longevity may be a good idea.
“Share prices fluctuate more than share values.”
--Sir John Templeton, Investor, banker, and asset manager
https://www.ft.com/content/dc17fddb-3e09-419d-aabe-90ee89511bc5 (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2021/05-03-21_FinancialTimes-Investors_Move_into_Cash_at_Fastest_Rate_Since_March_Last_Year-Footnote_3.pdf)
https://www.barrons.com/articles/the-stock-market-ignored-the-fed-meeting-why-that-could-be-a-mistake-51619715102 (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2021/05-03-21_Barrons-The_Stock_Market_Ignored_the_Fed_Meeting-Why_that_Could_be_a_Mistake_Footnote_4.pdf)
https://www.barrons.com/market-data (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2021/05-03-21_Barrons-Market_Data-Footnote_6.pdf)