Volatility and Opportunities
In the video for this vlog, you will see information from two different charts as Bobby Norman explains historical data. The first chart shows that going back to 1950, historically when the White House changes parties as we have just recently done, the month of February is historically volatile. Seeing how January ended, we won’t be surprised if history holds true. This is the reason why we continue to have a diversified strategy. History also shows that with volatility, can come opportunities. The opportunity here, we think could come from pent-up demand. The second chart in the vlog shows the history of pent-up demand through personal savings by consumers. With spending constrained the past year or so, we are seeing a lot of pent-up demand by both individual consumers and corporations. We feel that this will be a big tailwind for the markets as the economy continues to get better and citizens get vaccinated.
As previously stated, the story of 2021 will be how all that pent-up demand is going to be released by the consumer. Savings skyrocketed in 2020 as individuals were not allowed to leave their houses and spend at the rate they normally would like to. That was confirmed when the fourth quarter GDP numbers came out. This economic wide data is very important and can be impactful in the market. Spending can become earnings and earnings can help the market. Savings is a part of investments so that handoff in the reduction of savings versus the increase in economic growth is going to be very tricky and something we’ll watch on an ongoing basis. The GDP number came out for the fourth quarter of 2020 with a disappointing 4% annualized growth rate, which is a 1% quarter over quarter GDP growth. If you compare that to the other economies of the world, Germany was up 0.1% and France was down 1.3%. So, we’re still outpacing global GDP even with disappointing numbers. Where it got interesting and where it really impacts the market, is that we saw consumer spending go up 1.7%. That’s good but not nearly as good as the wages report. The average wage in consumer earnings was up 2.8%. Seeing wages increase at a faster pace than spending is rare in the U.S. We usually see more of a spend now earn later trend with the consumer. The fact that we’re seeing savings go up really builds up the potential, much like a balloon being held under the water, for pent-up demand that we could see later in 2021 as we get this economy reopening. How that impacts the market is going to be very fascinating to watch. That pent-up demand and increased savings for potential future growth are still building. We haven’t witnessed that release yet so it’s something we’re continuing to watch as it’s going to be very impactful.
The S&P 500 closed this past Friday at 3,714 which gives us a new resistance level of 3,800 and a new support level of 3,640. Last week we talked about pockets of momentum from both domestic and global standpoints. The 10-year treasury has stayed above 1% since January 6th. If you take that into consideration, that’s every single day in January, except for the first two days of the year. From a global standpoint, talking about pockets of momentum and strength across the world, let’s look at Germany where bond yields are continuing to rise. Last year, Trey mentioned in one of our vlogs that German bond yields were negative so, we’re seeing improvement there. In Europe, we’re seeing cyclical stocks hold up against defensive stocks. The fact that we’re seeing domestic and global strength is giving us some hope that this momentum may continue, despite some of the other interactions going on.
Greg Powell, CIMA®
President and CEO
Email Greg Powell here
Bobby Norman, CFP®, AIF®
Email Bobby Norman here
Trey Booth, CFA®, AIF®
Senior Vice President
Email Trey Booth here
Adam Vansant, AIF®
Associate Vice President
Email Adam Vansant here
Fi Plan Partners is an independent investment firm in Birmingham, AL, serving clients across the nation through financial planning, wealth management and business consulting. Fi Plan Partners creates strategies in the best interest of their clients using both fee based investing and transactional investing.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Economic forecasts set forth in this presentation may not develop as predicted.
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Stock investing involves risk including potential loss of principal.
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