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I'm sure you have seen Evergrande's name in the news this past week. Here is some information to help you understand...
By: Joe Maas, CFA, CFP®, CLU®, ChFC, MSFS, CCIM™, CVA, ABAR, CM&AA on May 14, 2021 2:02:44 PM
The U.S. economy continued to expand during April as commerce increased and more individuals could return to work. Approximately 29% of all Americans have received at least one vaccination and mask mandates are shifting as the viral spread gradually diminishes.
In addition, at the end of the month “President Biden unveiled a $2.3 trillion infrastructure plan centered on fixing roads and bridges, expanding broadband internet access and boosting funding for research and development, plus higher corporate taxes to pay for the package,” reported the Wall Street Journal. This plan will be reviewed by Congress during May, and if approved either in part or in whole, it could have a significant effect on the U.S. economy in the coming years.
Reaching its highest YTD this year at +10%, the Dow Jones Industrial Average greeted May flowers at 33,874, +893 points. Similarly enthusiastic, the S&P 500 gained +209 points and closed at 4,181 also with a +10% YTD. Gaining a substantial +716 points, the NASDAQ jumped from a YTD of +2.7% to +8.0% during April’s 30 days, saying goodbye to April showers at 13,962. Leading the pack, the Russell 2000 proclaimed a +13% YTD by gaining +46 points and closing at 2,266.
London’s FTSE index repeated March’s gains by increasing +256 points and ended the month at 6,969, enjoying a +7.4% YTD. The German DAX closed April’s door at 15,135, an increase of +127 points with a YTD of +9.6%. Paris was pleased with its YTD of +11.5% as the CAC increased +202 points and prepared for Victory in Europe Day at 6,269. Asian markets continue to struggle by comparison as the Shanghai Stock Exchange added only +5 points after 30 days of labor, closing at 3,446 with a -1% YTD. The Hang Seng Index in Hong Kong performed a lot better, ending the month at 28,724 after increasing +346 points and buffing its fingernails with a +5.2% YTD. The Nikkei Index continued its downward slide for the second consecutive month, losing -366 points and settling at 28,812 with a YTD a +4.4%.
Brexit continues to be in the news even though the European Union and the United Kingdom have parted ways as controversy continues with the dilemma of Northern Ireland customs’ borders. The United States military is ending a 20-year presence in Afghanistan, and India is suffering with as many as 400,000 new COVID-19 cases per day.
“China became the country to have administered COVID-19 vaccinations to more people than any other this week, but health authorities will need to accelerate the rollout to meet a target to inoculate 40% of its population by the end of June. China had administered a total of 243.91 million doses as of April 28, surpassing 234.6 million shots the United States has given. But with a population of 1.4 billion people, China has administered just 17.4 doses per 100 people, far behind the 71.1 administered in the United States, which has a population less than a quarter the size. China has given around 4.4 million doses per day on average so far this month and the pace would need to pick up to at least 5.0 million doses to reach its end of June target. Achieving that will test China’s vaccine production capability, as some parts of the country are already grappling with tight supplies, a health official said. He said the supply crunch will ease “from May, especially after June” as production is being stepped up. China's complete reliance on locally developed vaccines could complicate the country's immunization drive, as insufficient data on their efficacy has been released, and they have shown modest efficacy so far. China approved five domestically developed vaccines, and four of them reported efficacy rate of between 50.7% and 83.5% against symptomatic COVID-19 disease, lower than readings from rival shots developed by Moderna, Pfizer, and its partner BioNTech. The fifth Chinese vaccine, developed by a state microbiology research agency, has yet to release efficacy data, and Sinovac is the only vaccine maker that has released detailed data so far.” Source: Reuters.
The Federal Open Market Committee (FOMC) held its scheduled April 2021 meeting on April 27 and 28. “The Committee noted further signs of economic recovery in its April 2021 meeting, but reiterated that it will not change its monetary policies until “substantial further progress” is made toward achieving maximum employment and price stability. “While the recovery has progressed more quickly than generally expected, it remains uneven and far from complete,” said Federal Reserve chairman Jerome Powell. “The path of the economy continues to depend significantly on the course of the virus and the measures undertaken to control its spread.” Regarding inflation, “It seems unlikely, frankly, that we would see inflation moving up in a persistent way that would actually move inflation expectations up while there was still significant slack in the labor market,” said Powell in response to a question as to whether the Fed would begin to consider a change in rates. Instead, the Fed seems to view minor inflation as a worthwhile cost to an economic recovery, and is thus unlikely to overreact to price spikes as it pursues its goal of achieving maximum employment. That being said, the Fed does anticipate some inflation as recovery from the pandemic-induced downturn continues.”
Daily yields on 10-Year Treasuries fell -11 basis points by month’s end, the first decline this year. The yield is currently 1.63, an increase of +42% YTD compared with 1.74 at the end of March which then held a +92% YTD.
Though Comex gold finished 2020 at $1,892 per ounce, its close on April 30 was $1,765 per ounce, up +$55 for the month but at a diminished +7.2% YTD, and in a steady decline except for April’s +3% increase. Telling a different story, West Texas Intermediate Crude oil rose +$4.62, up +25% YTD from December 31’s $48.52 per 42-gallon barrel, and now firmly situated in the middle of the $60 – $70 price range at $65.01. As of April 26, the average national price for a retail gallon of regular gasoline was $2.96, an increase of +9 cents for the month and +80 cents, or +27%, for the year.
GDP: The advance estimate on Q1 2021 GDP from the Bureau of Economic Analysis indicates that GDP “increased at an annual rate of +6.4 percent. In the fourth quarter of 2020, real GDP increased +4.3 percent.” The report continued, stating: “The increase in first quarter GDP reflected the continued economic recovery, reopening of establishments, and continued government response related to the COVID-19 pandemic. In the first quarter, government assistance payments, such as direct economic impact payments, expanded unemployment benefits, and Paycheck Protection Program loans, were distributed to households and businesses through the Coronavirus Response and Relief Supplemental Appropriations Act and the American Rescue Plan Act. The full economic effects of the COVID-19 pandemic cannot be quantified in the GDP estimate for the first quarter of 2021 because the impacts are generally embedded in source data and cannot be separately identified.
Job Growth: The May employment report is due for publication on May 7. The last report issued by the U.S. Bureau of Labor Statistics was published on April 2, and contained the following information, referencing the situation in March 2021: “Total non-farm employment rose by 916,000 in March. 13 of the 15 major industry groups gained jobs for the month. The group with the largest gain was Leisure & Hospitality, which added 280,000 jobs, though still down 15% on a year-over-year (y/y) basis, the largest decline of the 15 industry groups. The second largest gain (+136,000) was in Government, primarily driven by government-run schools. The third largest gain (+110,000) was in Construction. All 15 industry groups remain down on a y/y basis.”
Housing Sales: The National Association of Realtors stated in their April 30 report “With housing inventory at record lows, it now may be more important than ever to build more homes. There are about 500,000 fewer homes available for sale across the country compared to the average number of listings in the last 5 years. As a result, the housing inventory shortage has pushed national home prices in March to a record high of nearly $330,000. If home prices continue to rise at this pace, many would-be homebuyers will be priced out of the market, hurting homebuying activity. At the national level, housing starts surged in March by 19% to a seasonally adjusted annual rate of 1.74 million units, the highest level since 2006. In fact, this increase in housing starts was well above expectations. Along with housing starts, building permits are also a leading indicator of housing activity for the upcoming months at the local level. Building permits provide an estimate of the number of new housing units that have been authorized by the government. Specifically, in March, single-family building permits rose in 42% of the metro areas across the country. While 10 to 12 months is the typical time that it takes to build a single-family home, more than 14,000 new single-family homes have already been added or they will be added soon to the market in the following months.”
Industrial Production: In their monthly April report on April 15, the Federal Reserve noted: “In March, total industrial production increased 1.4 percent. The gain in March followed a drop of 2.6 percent in February, which largely resulted from widespread outages related to severe winter weather in the south central region of the country. For the first quarter as a whole, total industrial production rose 2.5 percent at an annual rate. In March, manufacturing production and mining output increased 2.7 percent and 5.7 percent, respectively. The output of utilities dropped 11.4 percent, as the demand for heating fell because of a swing in temperatures from an unseasonably cold February to an unseasonably warm March. At 105.6 percent of its 2012 average, total industrial production in March was 1.0 percent higher than its year-earlier level, but it was 3.4 percent below its pre-pandemic (February 2020) level. Capacity utilization for the industrial sector increased 1.0 percentage point in March to 74.4 percent, a rate that is 5.2 percentage points below its long-run (1972–2020) average.”
Exports: The latest data for exports is February 2021. “Exports from the United States decreased by USD 5.0 billion from a month earlier to USD 187.3 billion in February 2021 amid weakening global demand, as rising COVID-19 infections worldwide prompted several trade partners to impose new restrictive measures. Sales fell for capital goods (down USD 2.5 billion) led by other industrial machinery, civilian aircraft and semiconductors, consumer goods (down USD 0.9 billion), foods, feeds, and beverages (down USD 0.7 billion), and vehicles (down USD 0.7 billion). In addition, exports of services were down USD 0.2 billion, due to travel.” Source: U.S. Census Bureau.
Imports: February is also the month with the most recent data for imports. “Imports to the United States declined by USD 1.7 billion from a month earlier to USD 258.3 billion in February 2021, led by lower purchases of vehicles, parts and engines (down USD 3.4 billion), and consumer goods (down USD 2.7 billion) on the back of pharmaceutical preparations. On the other hand, purchases of industrial supplies and materials increased USD 3.5 billion, boosted by finished metal shapes, crude oil, and natural gas. Imports of services increased USD 0.3 billion, led by transport and insurance services.” Source: U.S. Census Bureau.
Retail Sales: In an April 15 article released by Reuters, “retail sales rose by the most in 10 months in March as Americans received additional pandemic relief checks from the government and increased COVID-19 vaccinations, allowing broader economic re-engagement, cementing expectations for robust growth in the first quarter. The brightening economic prospects were underscored by other data showing first-time claims for unemployment benefits tumbled last week to the lowest level since March 2020, when mandatory closures of nonessential businesses were enforced to slow the spread of the first COVID-19 wave. Though output at factories rebounded modestly last month amid a global semi-conductor chip shortage that is hurting automobile plants, manufacturing remains underpinned by the strong domestic demand. “Demand is booming right now. Fed officials up to now have said they expect this boost in demand to be fleeting, and will not consider changes in policy until the labor market is at full employment and price levels increase at a sustained pace," said Chris Low, chief economist at FHN Financial in New York. "Their resolve will be tested in the next couple of months." Retail sales rebounded 9.8% last month, the largest increase since May 2020, the Commerce Department said. Data for February was revised higher to show sales dropping 2.7% instead of 3.0% as previously reported. March's rise pushed the level of sales 17.1% above its pre-pandemic level and to a record high. Economists polled by Reuters had forecast retail sales would increase 5.9% in March. Retail sales surged a record 27.7% on a year-on-year basis. The broad-based rebound was led by motor vehicles, with receipts at auto dealerships accelerating 15.1%. Sales at clothing stores soared 18.3%. Consumers also boosted spending at restaurants and bars, leading to a 13.4% jump in receipts. Still, sales at restaurants and bars are 1.8% lower compared to March 2020. Receipts at electronics and appliance stores increased 10.5% and sales at furniture stores rose 5.9%. There were also hefty gains in sales at sporting goods, hobby, musical instrument and book stores. Sales at building material stores vaulted 12.1%. Online retail sales increased 6.0%. Many qualified households have received additional $1,400 checks, which were part of the massive stimulus package approved in early March. The package also extended a government-funded $300 weekly unemployment supplement through Sept. 6. At the same time, temperatures have warmed up and the public health situation has been rapidly improving, allowing more restaurants to offer dining services. Excluding automobiles, gasoline, building materials and food services, retail sales rose 6.9% last month after a revised 3.4% decrease in February. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. They were previously estimated to have declined 3.5% in February. Growth is expected to top 7.0% this year, which would be the fastest since 1984. It would follow a 3.5% contraction last year, the worst performance in 74 years.”
Producer Price Index: A leading economic indicator, “The Producer Price Index (PPI) program measures the average change over time in the selling prices received by domestic producers for their output.” Issued on April 9 by the Bureau of Labor Statistics, “The Producer Price Index for final demand rose 1.0 percent in March, as prices for final demand goods advanced 1.7 percent, and the index for final demand services moved up 0.7 percent. The final demand index increased 4.2 percent for the 12 months ended in March.”
The Federal Open Market Committee has regularly set a ceiling of +2.0% of annually allowed inflation increase; this information indicates an inflationary increase of a little over double their usual annual allowance.
Consumer Price Index: Also a leading economic indicator, “The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.” The April 13 news release by the Bureau of Labor Statistics contributed the following information: “In March, the Consumer Price Index for All Urban Consumers rose 0.6 percent on a seasonally adjusted basis; rising 2.6 percent over the last 12 months, not seasonally adjusted. The index for all items less food and energy increased 0.3 percent in March; up 1.6 percent over the year.”
Unemployment: In an article published April 15, Time reporter Kendall Little reported the following based on the Bureau of Labor Statistics’ March news release. “The U.S. economy added 916,000 new jobs in March, according to the latest jobs report from the Bureau of Labor Statistics, the highest number of new jobs since last August and well above predictions. These new jobs bring the American unemployment rate to 6.0% — down from 6.2% in February and from last April’s 14.8% high, but still 2.5 percentage points over the 3.5% pre-pandemic unemployment rate in February 2020. While these numbers are encouraging, they’re small consolation for the 9.7 million Americans still out of work. Black and Hispanic Americans continue to face the highest levels of job loss, with an unemployment rate approaching 10%, much higher than that of the overall population. Long-term unemployed workers now make up 43.4% of the total, and last week, 719,000 people filed for unemployment for the first time. That’s the lowest four-week moving average of new claims since March 14, 2020, but it’s an unexpected increase over the previous week’s 658,000 new claims. March’s job growth marks three months of sustained improvement in the job market, and more than doubles February’s 379,000 added jobs. It’s also in line with the latest Employment Report from ADP, which on Wednesday showed 517,000 jobs added through the month, the strongest gain since last September. The BLS attributes much of this month’s growth to eased pandemic-related restrictions across the country, as well as a return to in-school learning. But even as we see signs of recovery, there’s still a long road before employment returns to pre-pandemic levels. In addition to an uptick in new jobless claims this week, the long-term unemployment rate is on the rise. The number of people unemployed for 27 weeks or longer make up 43.4% of the total number of unemployed workers. That percentage has steadily grow over the past several months and is up by 3.1 million since before the pandemic. Some industries are faring better than others. Service jobs, specifically in leisure and hospitality, saw the most growth this month, according to the report. That reflects ADP’s findings, too. But for jobless workers in some industries, recovery could still be far away.
“[The service] sector has the most opportunity to improve as the economy continues to gradually reopen and the vaccine is made more widely available,” Nela Richardson, chief economist at ADP said in a statement on Wednesday. “We are continuing to keep a close watch on the hardest hit sectors, but the groundwork is being laid for a further boost in the monthly pace of hiring in the months ahead.”
Consumer Sentiment: “The Conference Board Consumer Confidence Index® rose sharply again in April, following a substantial gain in March. The Index now stands at 121.7 (1985=100), up from 109.0 in March. The Present Situation Index—based on consumers’ assessment of current business and labor market conditions—soared from 110.1 to 139.6. The Expectations Index—based on consumers’ short-term outlook for income, business, and labor market conditions—rose moderately, from 108.3 last month to 109.8 in April. “Consumer confidence has rebounded sharply over the last two months and is now at its highest level since February 2020,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “Consumers’ assessment of current conditions improved significantly in April, suggesting the economic recovery strengthened further in early Q2. Consumers’ optimism about the short-term outlook held steady this month. Consumers were more upbeat about their income prospects, perhaps due to the improving job market and the recent round of stimulus checks. Short-term inflation expectations held steady in April, but remain elevated. Vacation intentions posted a healthy increase, likely boosted by the accelerating vaccine rollout and further loosening of pandemic restrictions.” Consumers’ appraisal of current conditions improved significantly in April. The percentage of consumers claiming business conditions are “good” increased from 18.3 percent to 23.3 percent, while the proportion claiming business conditions are “bad” fell from 30.1 percent to 24.8 percent. Consumers’ assessment of the labor market also improved. The percentage of consumers saying jobs are “plentiful” increased from 26.5 percent to 37.9 percent, while those claiming jobs are “hard to get” declined from 18.5 percent to 13.2 percent. Consumers’ optimism about the short-term outlook improved moderately. The percentage of consumers expecting business conditions to improve over the next six months rose marginally, from 40.3 percent to 40.5 percent, while the proportion expecting business conditions to worsen stood relatively unchanged at 11.9 percent. Consumers’ outlook regarding the job market was slightly less upbeat. The proportion expecting more jobs in the months ahead fell from 35.9 percent to 34.5 percent, while those anticipating fewer jobs rose from 14.4 percent to 15.5 percent. Regarding short-term income prospects, 17.9 percent of consumers expect their incomes to increase in the next six months, up from 15.4 percent in March. Those expecting their incomes to decrease fell to 10.9 percent, down from 12.6 percent.” Source: April 2021 Consumer Confidence Survey®
When Gil Amelio was the CEO of Apple, Apple’s stock had a terrible slump in 1997, hitting a 12-year low. This low was partly caused by the anonymous sale of 1.5 million shares. Steve Jobs persuaded the Apple board of directors to oust Amelio, and install Jobs as the new CEO. Later it was discovered that Jobs had been the anonymous seller.
With the arrival of spring and the promise of summer, accompanied by the availability of several vaccines and the gradual improvement of our domestic economy, it feels as though we are now approaching the end of our long 14-month pandemic trial. Our determination and resilience has served us well, even though the road has been bumpy, and maintaining our resolve as a nation to expect the best of each other and ourselves will facilitate the path that lies ahead.
Information contained herein is based on data obtained from sources believed to be reliable, however, such information has not been verified by Carlton Financial Group, LLC d/b/a Carlton Wealth or Synergy Financial Management, LLC. The information provided has been prepared and distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy or an offer of advisory services.
Sep 27, 2021by Joe Maas, CFA, CFP®, CLU®, ChFC, MSFS, CCIM™, CVA, ABAR, CM&AA
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