To my valued clients,
Mark Twain (American writer) “October: This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.”
As we write this note, it’s not possible to analyze the economy these days without focusing heavily on what the government is doing. Between the Federal Reserve, fiscal policy, and COVID, little in our lives avoids governmental influences. Short term, forecasting is easy. As the virus wanes and the U.S. rides the wave of easy money and debt, the economy, earnings, and equity values will rise. Inflation will too, and so we favor equities over longer duration fixed income assets.
Long term, decisions made by our government will have consequences and it makes forecasting much tougher. The decisions made today will at some point create longer term market issues. We will continue to monitor the current decisions being made and how it will influence our future positioning in the markets. If you have a particular concern, please give me a call to discuss.
“In the end, because government doesn’t create wealth, it only redistributes it, the bigger it gets relative to the private sector, the harder it is to create more wealth in an economy. During the 20 years ending in the year 2000, non-defense, non-interest government spending averaged 13.2% of GDP, while US real GDP grew an average or 3.4% per year. In the past twenty years (2000-2020) non-defense, non-interest government spending averaged 15.9% of the economy. While US real GDP grew just 1.8% per year. (Brian Wesbury-First Trust Monday Morning Outlook)
Factset has revised earnings growth in the 2nd quarter to 89.3% on the S&P 500 and is the highest since Q4 2009 (109.1%). Revenue growth averaged 24.9%. The 3rd quarter is expect to growth by 27.8% and the 4th quarter by 21.3% (Factset Earnings Insight)
The Atlanta Fed GDPNow has the 3rd quarter GDP growth rate estimated at 5.1% as of August 27. The New York Fed GDP Nowcast is estimating 3.3% 3rd quarter GDP. The answer is in the middle of these two numbers. (Atlanta Fed GDPNow and New York Fed Nowcast) (https://www.atlantafed.org/cqer/research/gdpnow)
We are still in a Secular Bull Market with many years left in its path. If that changes, we will adjust. As I’ve emphasized in our prior conversations, stocks are in a long term upward trend, and that upward trend is incorporated into your financial plan, but stocks don’t rise in a straight line. Be prepared for setbacks and use those as opportunities to add to equities.
As always, I’m honored and humbled that you have given me the opportunity to serve as your financial advisor. I’m here to assist you and to answer any questions you might have in regards to financial planning, the markets or walk through any issue that concerns you. As always, thank you for the relationship and trust.
Harry S. Williamson, WMS
First Vice President, Investments
Financial Advisor
Any opinions are those of Harry Williamson and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or Forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions.
The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S .stock market.
Prior to making an investment decision, please consult with your financial advisor about your individual situation.
