With Mother’s Day just a couple of days away, many people are excited to see and hug their moms. As a parent, I have learned no matter if dad is right there, everything is made better with a hug from mommy.
Yesterday, I was sent the link below and I thought it was especially pertinent going into this weekend.
Thinking about Mother’s Day and being a mother, there are some surprising similarities to the economy and market.
For example, imagine your greatest birthday party and try and put yourself in the middle of the action. The sounds of laughter, the smell of a cake and the wrapping paper all around you. There is a high likelihood this was made possible due to your mother and her planning. Now if the economy is the party, who or what is the mother? If you look at the increase in vaccine distribution and additional fiscal stimulus, along with consumer spending, these could be the “mother” laying the groundwork for a particularly good economy. After growing at a solid 6.4% annualized pace during the first quarter of 2021, U.S. gross domestic product (GDP) is just a small fraction away from recovering all its lost output from 2020. Economists’ consensus forecast for U.S. economic growth of 8.1% in the second quarter of 2021 (source: Bloomberg) may be too low given the additional progress toward a fully reopened economy and continued steady vaccine distribution. With more fiscal stimulus likely coming soon, GDP growth in 2021 may be the strongest in four decades, hardly supportive of a bearish view. Thus, a lot of good news may be priced into stocks. Years from now you may be able to look at this time fondly just as you did your favorite birthday party.
Unfortunately, every birthday party comes to an end and more times than not, the mother is left cleaning up. As mentioned last May, there is a popular cliché of “Sell in May and Go Away”. This is the idea that the stock market tends to be weakest between May and October (and strongest between November and April). Over the past decade, during those six-month periods, the S&P 500 Index was higher eight out of 10 times, with an average gain of 3.8%. Going back to 1950, even though the May-through-October period has been the weakest, stocks have gained 1.7% on average and have been higher 65% of the time—hardly a disaster worth avoiding. So, even though the party might be over, you still have the toys and leftover pizza and the expectation of the next party.
One of the major jobs of a mom is to worry. It has been my experience that if a child has something to potentially worry about, a mother will take that worry on. Well, the markets and economy have worries as well. Worries about the Federal Reserve tightening its monetary policy may intensify this summer as inflation picks up, potentially pushing interest rates higher. Tax increases are probably coming in 2022, and deficit spending continues largely unabated. Just as mom looks to the future and looks for the ideal path, we too are continuing to look for the ideal path to help you achieve all that is important to you.
Finally, every mother knows everything is not always rainbows and butterflies, and there are going to be some tears, disagreements, and hurt feelings along the way. To the economy and markets, this is volatility. Volatility is the highs and lows that are similar to the birthday party and corresponding sugar rush and fall children experience after eating cake, ice cream, and goodies.
The equity markets have been strong recently so any pullback would not be unexpected. Investors tend to have short memories. Since 1920, on average, the S&P 500 has experienced a 5% pullback three times a year with a 10% correction occurring once every sixteen months. While during the child tantrum or brief market correction, it might be tough to see anything positive, history has shown the event shall pass.
To all the mothers, Happy Mother’s Day and thank you for all you do for each of us.
I look forward to talking to you soon.
Chris Zeches, CFP®