Skip to main content

Sound Advice: March 3, 2021

Ka-Ching 

Ka-Ching was the sound made by old-fashioned, mechanical cash registers before electronic terminals took over.  These days, it’s a term used to refer to lots of money.

For investors, the critical question is what lies ahead for the stock market, not in the next few weeks, but in the next few months or years.  That depends on where the economy is headed.  Over extended periods, the path is upward, though there is always slippage along the way, sometimes relatively minor and at other times quite nerve-wracking.

The driving force behind the economy is consumer spending, which typically accounts for about 70% of the U.S. Gross Domestic Product.  Consumer spending peaked at $13.4 trillion in the fourth quarter of 2019, plunged to $11.9 trillion two quarters later, then rebounded to $13.0 trillion in the most recent quarter.

What lies ahead?  A further rebound.

During the closing months of 2020, consumers started to loosen their purse strings, but there’s a long way to go.  Data provided by the Economics Research Division of the Federal Reserve Bank of St. Louis tell the story.  From January, 1959 to last December, a span of six decades, the average personal savings rate was 8.9%.  More recently, from 1995 to present, that average dropped to 6.5%. 

The numbers tell the story.

Last April, just after the start of the pandemic, the personal savings rate skyrocketed to 33.7% from 7.2% in December, just four months earlier.  Then, as consumers began to calm down, consumer confidence rebounded a bit and so did consumer spending.  Even so, there is a long way to go.

As of December, the personal savings rate stood at 13.7%, which was 50% above the 60-year average and double the 25-year average.  There’s a lot of money waiting to be spent.

Where will it be spent?  Restaurants, travel, entertainment, and travel, to name a few.  Things like the prospect of rising interest rates may provide a headwind to the stock market, but the likelihood of freer spending consumers will be a powerful offset.

N. Russell Wayne, CFP®

Sound Asset Management Inc.

Weston, CT  06883

203-222-9370

 

www.soundasset.com

www.soundasset.blogspot.com


Any questions?  Please contact me at nrwayne@soundasset.com

Comments

Popular posts from this blog

Sound Advice: April 7, 2021

The High Dividend Strategy: Pros and Cons Let's start with the bottom line about investing in high dividend stocks: It works, but there are significant wrinkles.  A while back, I did a 20-year study of investing in high dividend stocks.  The approach was straightforward.  I began with the S&P 500 universe and divided it into 10 groups of 50 stocks each.  The groups were arranged by dividend yield, highest to lowest, at the beginning of each of the years.   I then tracked the total returns (dividends plus capital appreciation) of these groups for the full period. The results were illuminating.   The highest total returns were from the group with the highest dividend yields.   The returns then descended in perfect order down to the group with the lowest dividend yields.   What's more, the aggregate return from the group with the highest returns was greater than that of the Standard & Poor's 500 and its volatility over the period was lower. That did not mean all

Sound Advice: April 14, 2021

Up, Down & Sideways   In past years, the warmer months brought with them a time to turn one’s thoughts to more blissful endeavors.   Although childhood may have been many years ago, what lingers is the apparent freedom from care we felt when at last we were done with school.   Much has changed since those halcyon days when time hardly seemed to move.   Back then, the days went by slowly and the important decisions were few.   Now it’s almost as if you don’t know which direction to turn first. It’s all about communications and the seeming necessity of keeping up to date with what’s going on.   Much of the rising flow of developments may have little impact, but even so it’s no longer a time when we can disconnect until September. From an investment perspective, the challenge is to sort through the rapidly growing mountain of information to isolate the data that is critical and take action where it is needed.   On a grand scale, it’s a matter of separating the wheat from the cha

Sound Advice: April 21, 2021

How is the Market Doing? Despite all the noise being trumpeted by the media, the daily prattle about market moves is often wide of the mark and overloaded with information that is misleading or just plain inaccurate.   How else to explain a jump of several hundred points one day followed by a plunge the next day?   That makes no sense. Over time, the foundation for stock valuations is underlying profitability of the companies involved.   As profits increase, stock prices rise, though not necessarily in perfect reflection.   The relationship tends to be meaningful over extended periods, but often not in shorter spans of time.   That’s all about changes in investor psychology.   So let’s begin by defining the “market”.   If we are referring to stocks, the most common reference is to the Dow Jones Industrial Average, which consists of 30 major companies whose progress might be considered representative of the U.S. economy as a whole. The majority of the companies included here are r