Market Monitor: Recovery in the Balance?
Recent headlines focused on the renewed impact of COVID resurgences as the promise of a return-to-normal summer fell short. Despite the increased worries, markets were steadfast. One precipitous drop mid-month July was reversed by the next day, as investors looked at what is turning out to be a record earnings season and quickly jumped back in.
Let’s Look at Some Highlights
THE RECESSION WAS TECHNICALLY OVER RIGHT AFTER IT STARTED
Although it’s clear we are still dealing with the impacts of COVID-19, the pandemic sparked recession was relatively short. The National Bureau of Economic Research (NBER) announced that the 2020 recession only lasted for March and April before beginning to expand again in May 2020. Making this the shortest recession on record.
On the whole, the economy is still recovering. Recent reports showed that annualized GDP rose 6.3% in the first quarter and 6.5% in the second quarter (which was below expectations).
Individual companies have also done pretty well. Of the 458 S&P 500 companies that have reported second-quarter earnings, roughly 80% of them have beat analyst expectations. Sure, revenue numbers look good compared to the second quarter of 2020, when the effect of COVID really seemed to be hitting, but it is nice to see strong growth momentum and more growth than analysts predicted. We believe these strong company earnings are the driver of the consistent new market highs we have seen this quarter.
RETIREMENT IS EVEN MORE POPULAR THAN EVER
One potential lasting impact of the pandemic is a change in the overall workforce, with COVID pushing more people into retirement. The percentage of the U.S. population in retirement jumped by a good bit last year. The Dallas Fed studied retirement trends and found that the percentage of retired folks jumped from 18.5% in February 2020 to 19.6% in May 2021, equating to approximately 2.9 million people permanently leaving the workforce. Of course, people retire every year, but this was about 1.7 million more people out of the workforce than the before covid-trend.
Through August 17th,
- The S&P 500 was up 19.49% on the year
- The International Index (MSCI EAFE) is up 11.01%
- The Bond Index (Barclays US Aggregate Bond) is down 0.78%
The Smart Investor
Earnings continued to be the driver of stock market returns, and many signs point to a growing recovery. However, as we have recently seen, volatility is expected, especially with the rise of the Covid variants. For long-term investors, staying steady during the bouts of volatility should be par for the course. We continue to recommend following a solid financial plan crafted to withstand the spikes and drops, as much as possible, of a (hopefully) growing economy. If you need assistance, reach out to us, we are happy to help.
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The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The Bloomberg Barclays US Aggregate Bond Index is a broad base, market capitalization-weighted bond market index representing intermediate-term investment-grade bonds traded in the United States and is used for measuring the performance of the US bond market. Indexes are unmanaged and do not incur management fees, costs, or expenses. It is not possible to invest directly in an index. The MSCI EAFE Index is a stock market index that is designed to measure the equity market performance of developed markets outside of the U.S. & Canada. It is maintained by MSCI Inc., a provider of investment decision support tools; the EAFE acronym stands for Europe, Australasia and Far East.