Clint Carpenter, Director of Operations
Hi, Happy New Year and welcome to First Choice Financial Solutions Market Commentary. I’m Clint Carpenter, Director of Operations. I’ll also be introducing you shortly to Kris Venezia, Market Analyst, followed by Daryl Eckman, Economic Strategist. I’ll get things started here with a quick summary of the markets and then pass it over to my colleagues for some commentary.
So! 2021 is already off to a pretty interesting start in the markets, but let’s take a quick look back at 2020. The S&P 500, the most widely watched index, finished the year up more than 16%. The Dow gained 7.25% and the NASDAQ really outperformed, returning over 43%. So far this year, we saw each of the main three stock indexes get close to a 2% year-to-date return, but they’ve come back down to under 1% year-to-date. We’ll see what, if anything, can break this momentum.
Treasury yields continue to rise very slightly. The 1-year is paying .1%, the 10 year is paying just over 1% and the 30-year is getting much closer to 2%. Our average national mortgage rate is at about 2.9% still. Gold is currently $1,844/oz, continuing its gradual decline. Oil is still headed up, WTI is currently priced a bit shy of $54/bbl.
Kris Venezia, Associate Vice President of Investments
We have had some recent bad data with the economy. Employment Data: Initial jobless claims nearly hit 1 million last week. It was one of the worst numbers we'd seen in awhile.
The last jobs report also showed the economy lost 140-thousand jobs. The unemployment rate stayed basically unchanged at just a tick over 6.5%. The hope was that we'd consistently see jobs come back and the unemployment rate drop, so the December jobs report was disappointing. Consumer Sentiment: Consumers, overall, are still not big believers in the economy. The University of Michigan publishes statistics on consumer sentiment. It found consumers still pessimistic about the economy. However, looking deeper into the data, there is a political factor influencing the study. Republicans have turned sour on the economy since November. I'll let you do the math there. Democrats are only slightly more optimistic, according to this study, despite a positive election for them. Consumer Activity, Mixed Across The Country: The real-time data for consumer activity, like people going out to eat or how often they get gas or how many people are flying, is mixed across the country. Overall, it's another data point that's slipped a bit over the last few months, but it hasn't been a dramatic drop off. The interesting item here is the data differs across the country. For example, data shows people in Arizona much more active than people in Pennsylvania. Could there be seasonal trends impacting the data? The weather is nicer in Arizona, I can confirm that.
Coronavirus Cases And Hospitalizations Are Still High, Putting Pressure on Officials: The number of Coronavirus cases is still elevated. Hospitals continue to report that they have a high number of patients needing care because of the virus. Officials have been very reluctant to implement shutdown measures that we saw in spring of 2020. France and England have taken some stricter measures, using curfews, for example, but in the United States governors have held off on major lock downs. However, if hospitalizations and cases rise even higher, it could put more pressure on officials to take stronger action. A Lot of Momentum for Stimulus: There is a lot of momentum for another stimulus bill. Republican Marco Rubio has come out in favor of sending $2,000 to Americans (this is 600 +1400). Moderate Democratic Senator Joe Manchin made a comment about being against another stimulus check and the backlash was so swift, he flipped that opinion within three hours. President-elect Joe Biden put out his stimulus proposal, with the tab coming in close to $2 trillion. Democrats have control of the House, Senate and White House soon. There are very, very strong odds that at least another $1 trillion in fiscal support will pour into this economy.
J&J With A Single Dose Vaccine Expected In March It feels a little swept under the rug, but Johnson & Johnson has had some success in studies with a single dose vaccine. The current vaccines require a dose and then a month later a second dose. A single dose vaccine would help speed up the vaccination process. It also gives us a third company producing vaccines for the public. Little Support For Shut Downs, Politically Despite the high number of coronavirus cases, there is not much emphasis behind bringing back shut downs. We have seen states institute seating capacity limits at restaurants but in most of the country, people can technically go out to eat or see a movie, etc.
The Fed Fed Chairman Jerome Powell spoke last week. He continues to emphasize that the Fed will keep their pedal down and continue with this low rate environment. The low rate environment will continue to push money into assets like stocks and real estate.
Market Concerns Looking Ahead
Biden Administration, What Are Its Priorities?
I am still curious as to what the Biden Administration is going to do. I believe the agenda shifted in a big way when Democrats won the Georgia senate races, but we'll see.
What will his stance be on China?
What will his stance be on big tech?
Biden has stressed bringing the country together. China and big tech are two issues that have bipartisan support. Democrats and Republicans have both pushed for a hard stance on China. They also have expressed frustrations with big tech. Democrats have not been thrilled with the large amount of power Facebook, Google, Apple and Amazon have. Republicans have been angry with the way big tech and social media policies their platforms.
Rising Rates....
We have seen rates rise with the positive vaccine and stimulus news. When rates go up, it can drive dollars away from stocks and real estate. People are going to be less eager to buy a home if mortgage rates go up. Investors might put more money into bonds or CD's if they see what they consider to be a safer investment that gives some sort of a return.
The one caveat to this is the Fed. They have insisted that they will do whatever it takes to keep rates low. The Fed could use their unlimited spending power to help ensure that rates stay down.
Daryl Eckman, President & CEO
There is some optimism and the markets are showing that, there's even a hint of interest rates going up.
I think most people right now are looking for political calm which should help the markets. We've been a little surprised at the lack of volatility with the changing of the guard in Washington D.C.
There is some concern about unemployment but hopefully that improves as the year goes on. Studies from states show nearly half of states have vaccinated at least 10-percent of their population.
What are we doing right now? We are starting to nibble into the value stocks. They have been out of favor for a long time, usually there is a back-and-forth between value and growth stocks. Growth stocks are technology stocks, like Apple. Right now, we are looking at some of the value stocks. We don't get into individual stocks, but the groups include auto stocks and bank stocks.
There is a concern over rising interest rates. We'll continue to monitor that. There is also a future concern about foreclosures. We would anticipate some foreclosures later in the year and that could set off a decline in the real estate market.
We really haven't been talking too much about international stocks but there will be a lot to watch there with the new administration in Washington. We will see what the Biden cabinet and advisors want to do with those international relationships.
We have been waiting for that market pullback. When that happens, we will want to put more money into the market. Do not be afraid of the pullback, we want that to happen. If you have any concerns or questions about your finances, give us a call. We also do so much more than just investing your money, we're more than stocks and bonds.
Clint Carpenter
I’ll just come back in here with a few points for the beginning of the year. First, it’s a good idea to take a look at your paycheck withholdings at the beginning of any new year to make sure you aren’t withholding too much or too little.
We have some tools that can help you zero in on that magic number. If you adjusted your withholdings mid-year last year, you’ll definitely want to make sure you’re set up for 2021.
Also, speaking of taxes, the IRS has delayed the beginning of the filing season to February 12th. That means even if you have all of your documents and you’re ready to file, you won’t be able to for a few more weeks.
We’ll see if and when they push the filing deadline back, as they did last year. We’ll be sure to communicate any other major changes to the filing season.