VIDEO: The Bull Case for 2021
Welcome to my video presentation for Monday, March 22. In the article below, I highlight a specific investment opportunity that’s poised to pay off in a big way under current market conditions.
The three major U.S. stock market indices pulled back last week in choppy trading, as investors fretted that the economy would overheat and ignite inflation. But as I’ve made clear in previous video presentations, inflation fears are overblown.
It’s my contention that three pillars shore up the bull case for 2021: economic recovery, massive free liquidity growth, and a rebound in corporate earnings.
To be sure, unexpectedly bad news concerning the coronavirus pandemic could trigger dips along the way, but that’s not likely as vaccination rates accelerate. The tailwinds for the stock market, especially from fiscal and monetary stimulus, are powerful. Setbacks in fighting the virus could delay the bull market but, in my view, not derail it.
That said, stocks closed last week lower, as the 10-year Treasury yield finished higher for the eighth consecutive week, propelled by rising inflation expectations (see table).
Historically, rising inflation in and of itself hasn’t been fatal for stocks. The killer blow usually comes when the Federal Reserve preemptively raises interest rates to nip inflation in the bud.
However, Federal Reserve Chair Jerome Powell has repeatedly reiterated the central bank’s vow to sit tight on rates even if inflation temporarily spikes. After concluding its two-day meeting last week, the Fed continued to project near-zero interest rates through 2023.
Rx for the jobs market…
The $1.9 trillion relief plan signed by President Biden this month is not only providing Americans with a second round of stimulus checks, it’s also extending two federal unemployment programs that have kept millions of Americans from becoming destitute during the jobs crisis.
The Pandemic Unemployment Assistance program, which is available to individuals who are self-employed or who otherwise would not qualify for regular unemployment compensation, and the Pandemic Emergency Unemployment Compensation program, which extends benefits by up to 24 weeks for those who have exhausted regular unemployment aid, have been extended until September 6. Both programs were set to expire (see chart).
According to data published by the U.S. Department of Labor on March 18, jobless claims totaled 770,000 for the week ended March 13, an increase from 725,000 during the previous period. The total was well above the 700,000 consensus estimate.
However, the economic recovery appears to be on track. The Philadelphia Federal Reserve’s manufacturing outlook, released March 18, showed a reading of 51.8, representing the percentage point difference between firms reporting growth against those seeing a decline. It was the highest reading for the index since April 1973.
What’s a major factor that’s been driving stocks to record highs? Massive monetary stimulus, courtesy of the U.S. central bank, as a means to counteract economic damage from the pandemic.
According to the latest data published March 17, the Fed’s balance sheet has grown to nearly $8 trillion as it buys everything from U.S. Treasurys to mortgage backed securities (see chart).
Long-term interest rates currently hover at levels that aren’t economically restrictive. Rates are getting higher, but they’re not high per se.
The stock market took a hit last week, but I believe it still hasn’t reached a peak. The major international and U.S. stock indices are in the green year-to-date and underlying conditions point to further upside ahead.
Household savings rates are elevated. That pent-up cash will flow into the economy, as consumers cast off the shackles of quarantine. The disbursement of new stimulus checks will drive a surge in consumer spending, which accounts for about 70% of U.S. gross domestic product. The coronavirus pandemic’s denouement will unleash a manic desire among stir-crazy consumers to eat in restaurants, drink in bars, go on vacations, attend live events…you name it.
When the Spanish flu pandemic faded in 1919, it gave way to the Roaring 1920s. When COVID-19 fades, get ready for the Roaring 2020s.
Editor’s Note: The bull market is still alive and kicking, but maybe you’re worried about rising market volatility. The good news is, we’ve developed an investing methodology that makes money regardless of the market’s gyrations.
This trading system was devised by my colleague Jim Fink, the chief investment strategist of Velocity Trader, Options For Income, and Jim Fink’s Inner Circle.
By using Jim’s proprietary trading system, you can make steady profits no matter what the daily headlines bring. To learn Jim’s wealth-building secrets, click here.