As the U.S. makes progress on the vaccine rollout, our country’s economy is picking up momentum and slowly but steadily returning to normal. Pending any new setbacks, many large businesses are planning on bringing staff back to the office in September, and on the educational front, it appears schools at all levels are looking to reopen for the fall semester, and that momentum doesn’t look like it will be slowing down. Anecdotally, almost everyone we have spoken to over the past few months has told us that he or she is booking flights and getting his or her travel plans in place for the upcoming summer and fall. The main point: People are eager to return to as much normalcy as possible.
We’ve frequently mentioned that the markets have this innate ability to look forward six to twelve months. Whether it’s in anticipation of a recession or an economic expansion, the market has either sold off or recovered far in advance of the recession or economic recovery that later unfolded, and this time has been no different.
Let’s quickly summarize the market action throughout the past 15 months. We witnessed the fastest bull-to-bear market in history, from all-time highs on February 19, 2020, to the bottom on March 23, 2020, at the early stages of the pandemic that was immediately followed by the fastest bear-to-bull market reversal in history, from the bottom on March 23, 2020, to all-time highs less than five months later on August 18, 2020. Fast forward to today, just over a year later from the bear-market bottom, and most of the major market indexes are at or near new all-time highs.
We changed things up a bit with this update and decided to share five of the most-asked questions we’ve been receiving over the past few months and our insights on these topics.
1. What is driving the markets and the economy?
2. Should we be concerned about the national debt?
3. Should investors be concerned about valuations?
4. How will the proposed tax increases affect the market?
5. What else is on our minds?
The recovery has continued to gather momentum as vaccine availability and distribution has increased, and in light of this, economic fundamentals and the markets have gotten off to a good start this year. The market broadened, benefiting all investors; however, as we stated above, this yielded the investor who views the current market environment as devoid of risk, and that is worrisome. Last Friday (April 23), the S&P 500 closed just shy (0.33% to be exact) of an all-time high, and how this week pans out depends on how earnings unfold, as this is the biggest week of the earnings season that will include reports from the largest companies in the S&P 500. We are currently within the 72 hours that are arguably the most important of the year, as the big tech companies – Microsoft, Alphabet, Facebook, Apple, and Amazon, to name a few – update first quarter earnings, while the Federal Reserve has its policy meeting that is expected to focus on the faster inflation signals amid a roaring domestic economy. By next week, we’ll have a fuller picture of what we could see unfold in the second quarter, and although the first quarter momentum seems likely to carry through, it is prudent to remember that a healthy and needed correction may be on the horizon.