Recovery and Expansion

On Friday, we got the most disappointing jobs number in the history of tracking the US jobs market. Around 266,000 jobs were created month-over-month, which is a really good number. However, it is very disappointing compared to the over 1 million jobs that were expected by economists. That was very fascinating to see but what was more interesting, was the market’s reaction to the news. Initially, the market reacted negatively but throughout the day, the market rallied. What does that tell us? It shows that currently, the US economy and the stock market are still in recovery mode and not in expansion mode. When the market rallies on bad news, that tells us that the market is improving on the idea of more stimulus from the federal government and more low rates and stimulus from the treasury and the Federal Reserve. When you see bad news turn out to be good news, that is indicative that we’re still in the recovery phase. The next phase, where you go from recovery to expansion, is really where you get the long-term legs of the economy. That is driven by increased profits, increased GDP, and increased earnings, which then drives the market higher. This jobs report also showed indications of that transition into expansion because if you look under the hood, productivity was up 5.4%. That means that per worker, we’re getting more production. That is possible because we are currently eight million jobs shy of where we were pre-pandemic. That being said, the GDP is roughly where we started. So, we are very much more productive per worker than we were before. That is very positive because if we close that eight million worker gap, then the gross domestic product for the economy will be that much stronger. We actually see a 5.4% increase in productivity per worker. A lot of the unemployment is in the leisure and hospitality fields. We saw 31,000 jobs in the leisure and hospitality sector created last month. We are still over three million jobs short of where we were before the pandemic. That is important because leisure and hospitality are quick recovery jobs because there is less training involved and less increased capital expenditure. That is a gap that we should be able to close quickly in the summer months when leisure and hospitality consumer spending picks up. While the initial jobs report was very negative, the market reacted because we’re still in recovery. We still have positive stimulus from the federal government, positive stimulus from the Fed and on top of that, we are seeing individuals being more productive. Down the road, once we get all these jobs back that should lead to much higher earnings which can push the market higher and past recovery and stimulus into an expansion.

Technical Analysis

The S&P 500 closed at 4,232 on Friday. That gives us a new resistance level of 4,260 and a new support level of 4,201. One thing that we look at that supports the possibility of an economic recovery, is the 100-day moving average. We saw that number increase to 3,919. The reason that’s important is that that number could start to become one of our long-term support or recovery levels moving forward in the market.

Corporate Dividends

Here is an update on corporate dividends. Dividends are an important part of owning stocks because that’s money that goes into your pocket. When a company pays dividends, it is basically a commitment from the company saying they expect to keep that dividend going. Last April during the pandemic, we saw over two dozen companies in the S&P 500 reduce or suspend their dividend payments with more cutting dividends throughout the year. The great news is that this April, the opposite happened last month. We saw 33 companies in the S&P 500 announce dividend increases. At the same time, none of them announced decreases or suspensions. Estimates are for dividend payouts, from S&P 500 companies, to increase 5% this year. That means the payout to investors will be above $500 billion in corporate dividends this year. The bottom line is that a year ago, companies had no idea what was going on and what to expect. Now, there is more clarity, and they are now willing to put their money where their mouth is. We are keeping an eye on the historically low-interest rates along with the corporate dividend situation.

 

 

Greg Powell, CIMA®
President and CEO
Wealth Consultant
Email Greg Powell here

Bobby Norman, CFP®, AIF®
Managing Director
Wealth Consultant
Email Bobby Norman here

Trey Booth, CFA®, AIF®
Senior Vice President
Wealth Consultant
Email Trey Booth here

Adam Vansant, AIF®
Associate Vice President
Wealth Consultant
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.

No strategy can ensure success or protect against a loss.
Stock investing involves risk including potential loss of principal.

Securities and advisory services offered through LPL Financial, Member FINRA/SIPC and a registered investment advisor.

Markets and Your Money: U.S. Worker Productivity Supply and Demand