Where Do We Go From Here?

April 21, 2021

What a difference a year makes! Between February 2020 to March 2020 the S&P 500 (500 largest US companies) average dropped roughly 35% in that span. As many of you know through your account balances, you have made up those losses and have quite a bit of gains since then – in fact the S&P 500 has risen 74% since that market bottom.

Questions that normally arise in our client discussions are: Will this growth continue? Are we in a "bubble"? Will this current administration make the market drop? Let me preface this by saying this first, no one knows exactly what the future will bring or what "unknown" lies around the corner, but in this vlog I will discuss the things that I DO know which may help formulate an answer.

Economic growth is making a comeback. The International Monetary Fund (IMF) estimates that global GDP will climb 5.2% in 2021. The U.S. economy has picked up – which added 916,000 jobs in March, the strongest monthly performance since August. The unemployment rate dropped from 6.2% to 6.0%. Hiring picked up in most sectors as economic restrictions were eased across the country. About 9.7 million people were unemployed in the month – still 4 million higher than just before the pandemic.

Low rates continue to support asset prices. With interest rates seemingly "lower forever," stock markets may move higher if investors flock to stocks in search of better returns than those offered by other asset classes (namely CD's and bonds).

Travel and Leisure. Pent-up demand is poised to fuel a comeback in travel and other hard hit sectors as people yearn to go on their next vacation (or vacations!) or simply go out to dinner, putting the money that is sitting in their savings accounts, back into the economy.

Infrastructure. Another growth possibility is in the works as discussions around President Biden's $2 trillion infrastructure proposal kicked off. This bill would likely repair American roads and bridges, modernize public transit, invest in reliable passenger and freight rail service, improve ports, waterways, and airports. The administration would like to pass legislation by the end of summer, which means coming months will feature robust discussions about what qualifies as infrastructure spending (and how it should be paid for) all of which will affect which business sectors stand to gain and lose from the proposal.

Digital Innovation. During the COVID-19 crisis, one area that has seen tremendous growth is digitization, meaning everything from online customer service to remote working to supply-chain reinvention to the use of artificial intelligence (AI) and machine learning to improve operations. Healthcare, too, has changed substantially, with telehealth and biopharma coming into their own. The great acceleration in the use of technology, digitization, and new forms of working is going to be sustained.

Green Energy. All over the world, the costs of pollution—and the benefits of environmental sustainability—are increasingly recognized. China, some of the Gulf States, and India are investing in green energy on a scale that would have been considered improbable even a decade ago. Europe, including the United Kingdom, is united on addressing climate change. The United States is transitioning away from coal and is innovating in a wide array of green technologies, such as batteries, carbon-capture methods, and electric vehicles. Investment from these countries create opportunities.

So, while yes these are good things that can push the markets higher, it's important to remember that markets rarely follow a smooth upward path. Volatility can return at any time, and market corrections (drops) of 10% or more are common – as the NASDAQ endured in February and March. It is normal and healthy to have these corrections.

One of the main reasons you may have hired New England Capital to maintain your financial independence is to give you piece of mind that you are doing the right things, whether its financial planning or investment management. We are and continue to be here for you whatever your needs are. In addition to the great financial planning work we do, we are constantly looking for ways to increase your investment returns while looking for the best ways to minimize risk. Over the next month you will see proactive adjustments to the portfolios, not only to take into account the current market conditions, but other possible bumps in the road – like inflation for example. Until then, stay safe and healthy!