Stocks Rally Despite So-So Economic Data - Adviser Investments

Stocks Rally Despite So-So Economic Data

February 8, 2021

Please note: This update was prepared on Friday, February 5, 2021, before the market’s close.

The stock market forged ahead this week as Democrats succeeded in passing a new COVID-19 relief package. While the economic news was muted, earnings reports were strong and we expect to see signs of further growth in the weeks ahead.

Figures released today show that U.S. employers added 49,000 jobs in January, giving a lift to the labor market after a surprising dip in December. The unemployment rate fell to 6.3% in part due to a contraction in the total number of employed workers. That said, we’re still at a deficit of 9.9 million jobs from the February 2020 peak, and adding just 49,000 jobs in a month is, on a relative basis, nothing to herald.

Stocks are poised to finish their strongest week since November and the WallStreetBets/social media momentum play, which had held traders in its thrall, has become yesterday’s news. On a total return basis, the Dow Jones Industrial Average was up 1.6% for the year through Thursday, while the broader S&P 500 index was up 3.2%. The MSCI EAFE index, a measure of developed international stock markets, is up 0.9%. The Bloomberg Barclays U.S. Aggregate Bond index’s yield stood at 1.20%, up from last week’s 1.16% and from 1.12% at the end of 2020. The U.S. bond market has declined 1.0% this year.

The Economy Reclaims Ground

With the Super Bowl upon us, a football metaphor might be apt. Having been pushed into our own backfield, the U.S. economy is now gaining yardage and the goal line of full or near-full employment and accelerating economic growth is within sight.

Though manufacturing slowed a bit in January, it is still expanding. Keep in mind that December’s activity represented a two-year high, so the past month’s pullback was to be expected. The housing market has remained strong, too, with low interest rates bolstering demand for new single-family homes. A report on activity in the service sector of our economy also hit a two-year high in January. Those are all yards gained.

Greater demand for goods and services typically bodes well for the labor force and economy overall. As vaccine distribution continues to improve, companies that have been left out of the rebound are likely to gain ground as well.

We’ll take the positive economic news along with the setbacks but remain mindful of a lesson learned long ago: The economy is not the stock market. The stock market is not the economy. In the final analysis, it’s earnings (growing) and interest rates (low, hence stimulative) that drive stock market returns.

…But It Still Has a Long Way to Go

The Congressional Budget Office this week projected that the U.S. economy will be back to its pre-pandemic levels by the end of the second quarter—just four-and-a-half months from now. That’s undeniably positive news.

 

Sources: Federal Reserve Bank of St. Louis, Adviser Investments.

But we need to be brutally honest. Even if our economy claws its way back to its $19.3 trillion size (adjusted for inflation) by June, that’ll still leave us at least $600 billion smaller than where we would have been had we simply kept growing at the 2.1% rate seen in the final two quarters of 2019. The U.S. may be back to the 50-yard line by June, but the economy still has a long way to go make up for the yardage lost in the pandemic.

We look forward to the economy’s half-time show and seeing it build momentum in the second half of 2021.

Financial Planning Focus

Understanding Your Credit Score

Just as your blood pressure reading is an indication of your health, your credit score provides helpful shorthand for your financial well-being. Your creditworthiness directly impacts your pocketbook, affecting the interest rates you’ll be offered on loans, your insurance premiums, even your job prospects—employers often check a candidate’s credit history when hiring. Many people only learn how they score when applying for a loan or credit card. But regularly reviewing your credit score and credit reports can uncover trouble spots or suspicious activity before they get out of control.

So, credit scores and credit reports: What’s the difference?

A credit report is an in-depth look at your credit history, showing the loans and credit lines you’ve taken out over time, as well as your payment history and current level of available credit. It can also include any public records that shed light on your financial health (such as bankruptcy declarations, foreclosures or debt judgments).

A credit score is a single number that serves as a shorthand summary of all the information contained in your credit report, which lenders and others can use to quickly evaluate you as a potential borrower. Each of the three major credit reporting agencies—Equifax, Experian and TransUnion—has its own credit score, using information from a variety of sources. Many lenders also use credit scores provided by the Fair Isaac Corporation, or FICO.

You can review your credit report for free once every 12 months by requesting a copy at annualcreditreport.com. Doing so is not considered a “hard inquiry” on your credit and will not negatively impact your credit score. Reviewing your credit history gives you the opportunity to correct any mistakes (which will improve your score) and is an effective way to guard against identity theft. (For more tips on how to protect your information and your investments, please read our special report on cybersecurity.)

While the credit rating agencies often charge a fee to view your score, many other services, such as Mint or Credit Karma or even your credit card company, provide free credit score features. If you haven’t reviewed your credit score in the past year, it may be worth checking to see where you stand.

FICO, the most widely used credit score provider among lenders, tweaked its formula in late 2020. The biggest change is that now FICO takes a longer view of your credit usage—evaluating the 24-month trend rather than a monthly snapshot. With this, borrowers who pay off their credit balance on a consistent basis should see an improvement in their scores. Personal loans will also be considered separately moving forward. If you’ve consolidated credit card debt with a personal loan but still have high monthly balances on your cards, your score may be negatively affected.

Have questions about your credit score and how to improve it? Talk to your wealth management team. We’re happy to help. 

Strategy Activity Update

Please see below for a summary of the trades we executed over the week through Thursday and our current tactical strategy allocations.

Dividend Income

No trades this week. 

AIQ Tactical Global Growth

Sold VanEck Vectors Semiconductor ETF (SMH). Bought iShares North American Tech-Multimedia Networking ETF (IGN)

AIQ Tactical Defensive Growth

Sold S&P 500 ETF (IVV). Bought cash

 

AIQ Tactical High Income

No trades this week.

AIQ Multi-Asset Income

No trades this week.

Adviser Capital’s Market Takeaways

You can also find two new Market Takeaways videos on our website. Liz Laprade offers her thoughts on what the fate of online brokerage Robinhood can tell us about the future of FinTech and Vice President Steve Johnson explains how this week’s data might change your mind about the state of the economy.

Looking Ahead

Next week will be heavy on earnings and light on economic reports—but we will get looks at small business confidence, job openings, inflation gauges and consumer sentiment.

As always, you can visit www.adviserinvestments.com for our timely and ongoing investment commentary. In the meantime, all of us at Adviser Investments wish you a safe, sound and prosperous investment future.


Please note: This update was prepared on Friday, February 5, 2021, before the market’s close.

This material is distributed for informational purposes only. The investment ideas and opinions contained herein should not be viewed as recommendations or personal investment advice or considered an offer to buy or sell specific securities. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed.

Purchases and sales of securities listed above represent all securities bought and sold in each strategy during the period stated. Each strategy’s portfolio generally includes more holdings in addition to the transactions listed above and in some cases the securities listed above may only represent a small portion of the particular strategy’s complete portfolio. Further, the securities listed above are not selected for listing based on their investment performance; thus it should not be assumed that any of the securities listed above were profitable or will be profitable, nor should it be assumed that future recommendations will be profitable. Clients and prospective clients should only make judgements about a strategy’s performance after reviewing the strategy’s composite performance information. There is no assurance that each security listed above will remain in the strategy’s portfolio by the time you have received or read this email. Securities are listed for informational purposes and are not intended as recommendations. Existing investor accounts may not participate in all transactions listed above due to each account’s particular circumstances.

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