As I shared with you several months ago, my sister, Elissa, welcomed her first child in January. This past weekend Elissa and her son, Kai, came to Phoenix for a visit. It was great to meet my nephew and see my sister as a mother. Interacting with Kai, brought back fond memories of Francis at that age. Additionally, it reacquainted me to life with a young child as Katie and I look forward to welcoming a baby girl in August.
Looking back on the weekend it got me thinking how much we forget when we are not currently living it. As it relates to a baby, this means the changing of the diapers and cleaning of the bottles, yet this can be true in all parts of our lives. For example, can you recall what happened on the following dates:
- October 19, 1987
- September 15, 2008
- August 5, 2011
- July 18, 2013
- August 5, 2016
- February 4, 2018
- March 11, 2020
Personally, I can recall four of those dates.
- October 19, 1987- Black Monday
- September 15, 2008- Lehman Brothers bankruptcy
- August 5, 2011- United States federal government debt downgraded
- July 18, 2013- Detroit files for bankruptcy
- August 5, 2016- Birth of Francis and the opening ceremony for 2016 Summer Olympic Games
- February 4, 2018- Super Bowl LII won by the Philadelphia Eagles
- March 11, 2020- Suspension of the 2019-2020 NBA season due to COVID-19
All the above events were important to some people, however, they most likely were not, when looking back now, especially memorable to your life. Some of the events caused stock market movements, while others were entertainment for several hours. They may have seemed especially important at the time, but as the years have gone by, we have seen the little impact they may have had. This leaves us with the events which we hold near and dear to our hearts. Examples could include the birth of a child, a wedding, the purchase of a house, or even the death of a loved one.
Why I bring this up is it is important, as individuals, to remain committed to our long-term financial vision and do not allow daily fluctuations in the market or economy to affect our choices. There is always going to be the hot stock or economic indicator reported, but what we want to focus on is what is going on in your life which could have an impact on you achieving your financial goals.
Looking at the current environment as we move into June, a path to normalcy is coming quickly with stadiums allowing full capacity, restaurants filling up, and summer vacations in full swing. Meanwhile, the U.S. economy continues to recover and the stock market is near all-time highs.
Even with all of the good news, there are new worries including companies having trouble finding workers, the potential for higher inflation which has many wondering whether this means the Federal Reserve is behind the curve and will need to quickly tighten monetary policy to stave off inflation. Add the potential for higher taxes and more deficit spending, there is the cause for some cautiousness.
The U.S. economy continues to open faster than even the most optimistic economists expected at the start of the year. Much of this is due to COVID-19 cases hitting new lows and restrictions being lifted across our country. The U.S. economy has likely already recovered all its lost output from 2020, with U.S. gross domestic product (GDP) expected to grow close to 10% in the second quarter of 2021 (source: Bloomberg). As of now, this year is on pace to be the best year for GDP growth since the early 1980s, bolstered by fiscal and monetary stimulus.
First-quarter earnings season is over, and it was extremely strong. The percentage of S&P 500 companies beating earnings per share targets (87%) and upside to revenue growth (over 4 percentage points) were both the highest that earnings data aggregator FactSet has ever recorded. The 52% year-over-year increase in S&P 500 Index earnings per share came in more than double the 24% estimate as of April 1. Lastly, overall earnings estimates for 2021 have increased 12% this year, right in line with the return from equities.
Strong economic growth and massive stimulus have brought with it worries over the economy potentially overheating. The Consumer Price Index (CPI) reports have sparked much of the worries, with the core reading (excluding volatile food and energy prices) rising month over month, at the hottest rate since the early 1980s (U.S. Bureau of Labor Statistics). You are likely seeing higher prices when you go to the grocery store or fill up your car, making this a real concern. Problems filling jobs and supply chain issues are adding to the inflation pressures on top of the pent-up demand coming through as the economy fully reopens.
The next several months are historically the most volatile of the year for the markets and we would not be surprised to see that happen once again. Reasons for this volatility can include summer vacations and less trading activity as well as politicians not in session.
As you look to the summer, I hope you have a trip or two planned.
Talk to you soon.
Chris