Judy Loy, Registered Investment Advisor, ChFC®, RCP® and CEO of Nestlerode & Loy, Inc.
By Judy Loy
Registered Investment Advisor, ChFC®, RCP® and CEO of Nestlerode & Loy, Inc.
With pandemic lockdowns and quarantines shutting down restaurants, restricting travel and hurting traditional retail, 2020 has been bleak for the economy. (That two-week quarantine seemed like an eternity…) The stock market took notice and fell rapidly in March 2020, but it didn’t last long. The rebound came quickly and the S&P 500 (an index comprised of 500 major publicly traded US companies) ended the year with a return of 15.76%. So far in 2021 (at the close of 4/1), the index has returned 8.67%.
When US unemployment reached 14.7% in April 2020, the market began its rally. Actions disconnected from reality? The first thing you need to know is that stocks are forward-looking. Stocks are a leading indicator, which means they correspond to future movements or changes in business and the economy. Therefore, the stock market will react favorably before the economy improves. Another leading indicator, which is warming up, is manufacturing. March 2021 recorded the strongest manufacturing growth since 1983.
The latest jobs report released on Good Friday showed an increase in hiring. US employers added 916,000 jobs in March 2021. The unemployment rate fell to 6%. The job growth estimate was 675,000 jobs added in March. The figures for January and February have been revised upwards.
The news is not only positive for the United States. The International Monetary Fund predicts that the world economy in 2021 will grow at the fastest pace in 40 years. The United States and China will lead the way with projected growth of 6.4% and 8.4%. In many developing countries, the news is not so positive. Many emerging markets will only have 28% of their population vaccinated by the end of the year, compared to 72% for developed countries. Thus, vaccinations highlight inequalities across the world.
The Federal Reserve sets bank borrowing rates and helps stimulate or slow down the US economy. At its last meeting, Fed officials saw better prospects for the economy. Even with that outlook, the Fed says it’s committed to keeping rates near zero through 2023 and continues to buy bonds. In this way, the Federal Reserve is still supporting the economy and not ready to derail the positive path.
Finally, Jamie Dimon, the CEO of JP Morgan Chase, the largest American bank, published his annual report letter to shareholders Wednesday. The tone was very optimistic as the business leader anticipates an economic “Goldilocks moment” through 2023. A Goldilocks economy is neither too hot nor too cold and allows for steady growth, stability economy and full employment, but not too hot to cause high inflation. Dimon’s arguments for the “perfect economy” are strong consumer savings, vaccine distribution and the $2.3 trillion infrastructure plan proposed by President Joe Biden.
All of this incredibly positive news is why US stock markets are in a positive state. Remember: they are forward looking, so they will send the warning signal before we see the problems or the downturn in the economy, which is why it is so difficult to predict market movements. .
Any investment is subject to risk, including the possible loss of the money you invest. Nothing in this article should be construed as investment or retirement advice. Always consult a professional adviser and consider your risk tolerance and the time you need to invest when making investment decisions.