Quote of the Week
“Make the most of yourself…for that is all there is of you.” – Ralph Waldo Emerson
Last week the S&P 500 was up +0.84%, the Dow was up +1.85%, the Nasdaq was down -2.05%, and the MSCI EAFE was down -0.45%. For the year, the S&P 500 is up + 2.56%, the Dow is up +3.29%, the Nasdaq is up +0.37%, and the MSCI EAFE is up +0.37%. The markets have pulled back from their all-time historical highs.
What I really find interesting is the pullback of the Nasdaq index. The “story” and the “stay at home” stocks have been hammered over the last few weeks. The Nasdaq is down today (Monday) -15.8% from its all-time high on February 12, including FANG, which has been a key driver in the S&P being up.
We are still in Quad II and we are still bullish on the markets.
Monthly Job Growth and the New Stimulus Bill
The good news is that the US economy is coming back. We had a pleasant surprise last month as fewer new COVID cases and loosening restrictions increased labor demand. Restaurants and bars accounted for more than half of the net gains with 286,000 jobs being added. That sector had been hit the hardest by the virus.
US manufacturing increased for the ninth straight month and reached a post-COVID high contributing to the demand for labor. The ISM Manufacturing Index rose to over 60 on a scale of 0-100. Anything above 50 is considered expansion and anything below 50 is considered contraction. The score of 60 is exceptionally high. Add to that the US Senate passed $1.9 trillion in new stimulus which will certainty increase demand. Plus, add to that the $1.85 trillion sitting in consumer’s savings accounts. The success of the vaccines is making it possible to have a huge wave of spending coming soon.
The one negative in investors’ eyes is that all this demand will increase inflation. We agree that we will have increased inflation. Since June of last year, we have positioned the portfolio to take advantage of that inflation. We are not concerned about increased inflation because the Fed doesn’t seem to see it as a problem because they are more concerned about getting the economy back to normal. They can deal with inflation later by raising short term interest rates.
So, we are going to stay bullish until we aren’t. We trust in the math.