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Market Commentary 04-08-2021

Clint Carpenter, Director of Operations

Year-to-date, both the DOW and the S&P 500 are up close to 9%, so far. The NASDAQ, which soared last year, has been a little more tame thus far, up 6% year-to-date.

Treasury yields continue to see-saw, with the 1-year yielding .07%, the 10-year paying 1.6%, and the 30-year down to 2.32%. The average national mortgage rate in the US is 2.97% APR for a 30-year fixed loan.

WTI Crude oil seems to have settled around $60/bbl over the last few weeks. Gold has also calmed a bit, it’s priced at $1,741/oz. Silver sits at $25/oz.

Kris Venezia, Market Analyst

Hello, I want to discuss what we're looking ahead at as we try to figure out how to position portfolios.

First, it's important to briefly explain how we got here. The S&P 500 has crossed over 4000 and we have the Dow at record levels as well. We're in what's called a "risk on" environment. Investors are flooding into stocks and real estate and that's boosting asset prices. The market has continued to get good news. We recently had more stimulus pumped in, rates are still very low, Covid rates are slowing down and we're seeing signs of job growth really coming through the rest of 2021. It's hard to be negative or a "bear" right now.

So what's ahead?

Well, the market continues to see positives on the horizon.

Job openings hit their highest level in two-years which is a positive sign. We still are at spot where there needs to be more of a recovery with jobs. The official unemployment rate is at 6%, but, economists have pointed out that there's several million people who left the workforce when the pandemic started. They might not be counted on those jobless numbers, but, if we want a booming economy, we want these people participating.

Democrats are pitching another couple trillion for infrastructure spending. If more money gets pushed into the economy, it should push asset prices up.

Consumers are really starting to open their wallets. JP Morgan and Bank of America put out data on card spending, and we are seeing robust spending for consumers. We're also seeing consumers shift their spending more towards experiences. We are seeing more spending on flights, going out to eat and booking hotels.

Like I said, hard to be negative right now as investors look ahead. Of course, there's always risks, and we have to be aware of what could really disrupt the market.

The biggest one that worries investors, long term, is high inflation. I won't get into the nitty gritty of how that would all play out, but high inflation would put a dent into the U.S. economy.

A second one, that goes along with the inflation conversation, is higher rates. We have seen rates rise a little, but they are still low. If the economy really opens up and starts to overheat, we could see rates rise. A high rate environment hurts many parts of the stock market, like high growth stocks and big dividend stocks. Higher rates would also motivate us to make more robust portfolio changes. If rates are higher, it makes bonds much more attractive. We would look to generate more income for the portfolios, through bonds, in a higher rate environment.

Outside of that, there are some less likely risks that could pose problems. While it's not likely, we could see a Covid mutation that the vaccines don't protect against and this would really hamper the recovery. The Democrats infrastructure plan includes raising the corporate tax rate, and if business have to pay more taxes, it will have an impact on their earnings. Finally, Congress or the White House could make big tech or China a bigger priority. If U.S. politicians go after big tech companies over anti-trust issues, it could have a very negative impact on some of the largest stocks in the market. Also, if Congress or the White House decides to step up pressure on China, it would also ruffle the markets.

My biggest fear is the excessive risk taking some investors are taking. When investors are over-invested in risk assets, like real estate and stocks, it can cause big problems when something negative does, eventually, happen. People get forced to sell assets and it can cause this ripple effect of selling. We saw this a little over a year ago when investors were positioned far too aggressively in early 2020. We had a negative event happen and there was no smooth way off the ride, instead, we had excessive selling.

Daryl Eckman, President

The economy is certainly moving in the right direction. We are seeing many leading indicators pushing in a positive direction.

The Business Activity Index has really soared and shows expansion in the economy. The major indicators are showing momentum that the economy is showing signs of doing better.

The increased vaccine distribution is certainly helping with the economic recovery. It is helping to allow the economy reopen.

The weather has also played a factor recently. There was some bad weather in parts of the country in February, and with that bad weather subsiding, parts of the economy have been able to open up.

We think the unemployment rate will continue to drop. There appears to be so much momentum with businesses hiring employees.

The combination of better weather in parts of the country, more people getting vaccinated and officials getting rid of restrictions should have a very positive economic impact.

The numbers in March were so good that we are anticipating some choppiness, on the economic indicators, in April.

We haven't really been too surprised with the data coming out, it's around what we expected. If anything, we have been a little surprised with how good the data has been, it's blown by a lot of projections.

Clint Carpenter

These calls cover a lot of broad macro-economic information, but we are always considering your specific needs ...

A heads up to our clients, over the next few weeks we’ll be sending out your most recent investment suitability responses we have on file. You may remember this as our little pop quiz, just asking for some of the basic details that help us provide suitable financial advise to each of our unique clients. It asks for basic information about income and net worth, but also presents a few scenarios for you to consider that help us measure your tolerance for risk. Your responses to this are greatly appreciated so that we can make sure we’re continuing to provide the best advice we can and make sure your portfolio is adapted to your specific circumstances. So, if you will, please keep an eye out for that correspondence and let us know if you have any changes to the information.

Just a few tax related reminders - the deadline to file your U.S. return has been extended to May 17th. The IRS has also set that as the date to make your prior-year 2020 IRA contributions, so be sure to make note of that revised tax day this year.


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