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Stocks rose for the 5th straight month in March. The rise in March was nothing stellar in terms of performance but for the month the S&P 500 index rose just shy of 2%.  
 

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AS OF LATE   

 

     What a difference a year makes! A year ago in March, we were diving in deep to what was soon to be called a pandemic. Now, it seems the end is in sight. Instead of life seeming to fall off into a land completely unfamiliar to most of us, life seems headed back toward normalcy for so many.

 

     The same can be said for markets too.  Last year, as you can see in the graph, for the month of March it seemed like things fell off a cliff and for many investors it felt like there was panic in the streets. March of 2021 hasn't shown that markets are scaling the highest peaks however, they are definitely inching higher. 
 

In the 1st Qtr of 2020 shown here, the S&P fell from a high of +4% to a low of -31%!

 

 

This shows the S&P 500 for the 1st Qtr of 2021. Quite different from the 1st Qtr of 2020 shown above.
    

 

So even though many didn't know where we were headed just over a year ago, the current time frame question is the same, where to from here?

 

     As I have written before, it truly appears from the CRA viewpoint that markets will not heal in unison and the recovery will look much like this. <. Some industries and some sectors of the economy will grow very quickly, rising out of the economic conditions of the past year and others are going to stall and lag behind the rest of the market.
 

This graph shows that some of those industries, fully necessary to rebuild and grow an economy, are leading stocks in general and the U.S. economy needs their strength to remain.

 

     As shown in the graph above, we need to look at what's working in the here and now. In addition to the above leaders, we continue to see housing cost increasing. Housing availability is in very short supply and oftentimes when houses go on the market, potential buyers are bidding them up higher and higher. The biggest increase in housing purchasing is in the purchase of second homes, up over 90% from the same period in 2020. Purchasing of primary homes is up 32% over the same time-frame in 2020.

     Two items may negatively impact housing in the near-term. One could be the continued short supply of housing to be purchased which is driving prices higher and that may begin to push many people out of certain price ranges of particular types of homes. Additionally, since interest rates on government bonds have been moving noticeably higher this year (shown in the graph below), interest rates simply have a way of mentally making people step back from purchasing many items, mostly housing. Notice in this graph how the acceleration of interest rates higher for 20 year US government bonds seems to be skyrocketing.   

 

As we can see here below, while the S&P 500 is up about 7% for the year so far, the interest rate on government bonds has taken a big leap higher since the year started. This worries many investors who hold bonds and it could stall the growth of stocks in general at some point. 


     Additionally, not only are specific industries shown above pushing well ahead of the broadly held S&P 500, companies of certain sizes have been leaders in the market movements. Looking at the next graph, the most notable item is that the leading index for 2020, the NASDAQ, is the laggard in early 2021. The laggard for early 2020 is now the leading index here in 2021! What's old is new and what is new is old maybe?

 
 A Real Phenomenon, 2-n-1!

   1)   Back in the early stages of the announcement of a pandemic, with layoffs occurring and the feeling of fear, the numbers began to show that people were saving money. Big money! The "savings rates" for Americans began to sky rocket. Americans, saving money? Amazing.  After decades of the bulk of Americans NOT saving enough money, suddenly, they were!

     Actually, once the data continued to flow out and examinations began to occur, though Americans were not spending money, they were also not truly saving it.  They were simply sitting on cash and not spending it.... for the time being.  Remember, Americans had not been saving like they needed to for decades! Would that addiction to "retail therapy" be cured that fast? No, not at all. 

Although there are about 9 million people still out of work; with the stimulus money that began flowing in March/April of 202 and the subsequent addon packages which have been rolled out will soon have those with jobs beginning to spend again and they will continue to do so. The standard "savings rate" of the average American will come sliding back down to it's historical norms. Barring some new, unforeseen interruption, this economy is going to run. Not all at once but it will run.


     Now, with all the stimulus money that started flowing in March/April of 2020 and the subsequent addon packages which rolled and including the one which is currently hitting checking accounts still today, while there are about 9 million people still out of work, those who have jobs are beginning to spend again and will continue to do so.  The average "savings rate" of the average American will come sliding back down to it's historical norms. Barring some new, unforeseen interruption, this economy is going to run. Not all at once but it will run. 

   2)  Meanwhile the U.S. government is stepping into and sinking further into debt. Big debt, major debt, long term debt and it will cost each of us major dollars more in the future than it has in the past.  Taxes will not be the only thing going higher. In 2010, the U.S. ended the year at $10 Trillion in debt.  In 2016 we ended the year $20 Trillion in debt. In 2020 we ended the year at $27 Trillion in debt and with recent commitments on stimulus, by mid year 2021, we will likely eclipse $30 Trillion in debt.


We remain watchful!

 


Ken Graves, Chief Investment Officer

Capital Research Advisors, LLC
 
 

 

CaptialResearchAdvisors.com 

Capital Research Advisors, LLC, 
4185 B Silver Peak Parkway, 
Suwanee, GA 30024 
770-925-1000 
800 -767- 5364 
All rights reserved

 


Mortgages (click here)  

 

There is still time!  The average interest rate for a single family home currently financed in the U.S. for more than 3 years is 4.1%!  Refinance that house and shove money into your pockets.

Mortgage rates.. we have been pointing them out for a long time.  Talking about them heading lower and lower and now, the great opportunities may be gone.  
There is an old saying about housing though,

"If housing subsidies, the economy dies."




 

So you may become tired of reading in this monthly newsletter about inflation. It's not only coming, it's already started. So it's here and it's still got more to come.  So we want to look at some of the areas we are already seeing inflation occurring and also look at some of the reasons why. 

 

Recently I was in a restaurant grabbing something to eat and I saw the owner. So I asked because I typically do when I shop somewhere, “How’s business?”  Their response was this, “Business is great! Being in business is terrible right now!”  I was a little shocked by the answer so I asked for an explanation. They said, “Lots of people are starting to eat out again and we're going to make it…..at least I think we are but my problem right now is I can't get  any help. Even my deliveries are really slow to the restaurant. I'm supposed to get a shipment on Tuesday, and it might come Wednesday or it might come Thursday. And nobody even calls me to tell me it's going to be late. I don't know whether to go to the grocery store and start buying stuff at retail prices or not? It’s kind of nuts for me really.  Work hard, build a great restaurant, survive the shutdown that was probably shutdown longer than it should have been, and now as business comes back, I can't find enough people to work! 10 million people out of work and I can't hire anybody! Like I said, it's kind of nuts.” 

 

So what will he likely do in order to be able to hire people? First, he'll wait and see if you can get past this but at some point he may have to pay people more or he could go robotic. It is already happening. Sure, he will have to spend money to buy the robots but once he has them, no more worries about some of his staff quitting, wanting off, not showing up, being sick. Also, he won’t pay SS for the working robots, or health insurance or worker comp or retirement benefits. Lots of savings for the employer. Who knows, one day the most common first job in America won't be, working at McDonald's! 
 

Things like this will drive inflation! Whether the employer up pays people more per hour than their current pricing will allow or has to use current capital and loans to buy robots, this will begin to drive inflation.
 

But we don't have to wait for all that to get here. There are many other areas in our lives which are already seeing noticeable price increases. Shortages in microchips are causing new car manufacturers to slow down their production lines which makes cars more scarce thereby driving prices up. A neighbor of mine was recently looking at a new vehicle and the dealership said the particular vehicle he wanted would take seven to nine weeks before it came in and they would sell it to them it's $7,500 over the sticker price. About a 12% increase! 
 

Also, a client of Capital Research was thinking about adding on a large deck to the back of their home. They got a couple of bids from different contractors and this was all done in December. They called the contractor back about mid March to work out a few details and to set a construction date. The contractor told them it would be about 12 weeks before he could get started and the price was going to be 22% higher than it was in December. The cost increase was due to two things. The cost of lumber, up just over 14% in 2021 alone and the Increase in the price of labor combined to create the 22% increase in almost exactly 90 days.

 

While these examples given here or other examples about specific types of products, I think all of us have seen a roughly 25% increase in the price of gasoline. The fluctuation in the price of gasoline in and of itself is no new phenomenon. It tends to happen all the time. Up during one cycle of the year and down in another cycle of the year.  The problem this time is that the price of gas is going up at the pump at the same time the price of so many other things is increasing as well.  When items begin to inflate in unison that inflation tends to have more staying power and it tends to affect the prices across a broad range of goods and services.


Also recently while I was sitting down at a different restaurant than I mentioned above, I happened to notice they were serving their drinks in Styrofoam cups and historically they've always been plastic cups they later wash and reuse. I don't know if they shifted to Styrofoam cups because of the perceived health benefits to patrons or if they haven't been able to find someone to consistently work there and wash dishes. I do know from my days working in the restaurants that my dad owned, we always preferred reusable washable tableware of any description rather than disposables. Disposables were always more expensive, made mountains more trash to deal with and just simply did not give the dining experience for the type of restaurant that he owned-the kind of feel they wanted to create for their customers.  The particular restaurant I was in recently had disposables, not only were the cups disposable so were the plates and the items used for tableware.  It's just going to cost more.

   So it seems inflation is here (in it's infancy) and there is more to come.  Whether it is housing prices inflating (rental costs are inflating as well) or costs to borrow money to buy houses are inflating, or building costs for housing/cars/boats are also inflating.
Even the costs of shipping goods has skyrocketed in the last year-now up more than 50% based soley on demand as you can see the video of the backlog of ships in the waters just off of Los Angeles. Fuel costs for cars and trucks are rising and that will filter down to raising the costs of most goods, particularly items brought in fresh from various regions of the country.  The shift to more disposables used in dining rooms adds to overall costs as well.

Inflation is here and more is coming.

 

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This report/summary is to be considered general in nature, reflects our opinions and is based on our best judgment at the time of writing. All information is deemed to be from reliable sources but we cannot guarantee its accuracy. No warranties are given or implied as to their promise of occurrence in the future or their accuracy. It is the readers’ responsibility to decide if any of our opinions are suitable for their own individual situation, and in what manner to use the information. No specific decisions should be made based on this report. These opinions should not be construed as a solicitation for any service. Past performance does not guarantee future results. The opinions expressed in this piece are those of the author and do not necessarily reflect the opinions of Ceros Financial Services, Inc.

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IMPORTANT DISCLOSURES

All the information in our newsletter is believed to be reliable and much of it is based on the proprietary research of Capital Research Advisors, LLC itself. However, because of the volume of information we review and the frequency with which it changes the information can only be provided as is on a best efforts basis. The information is not intended to be actionable investment research and therefore should not be used as such. Sources for this information include, but are not limited to, CBS MarketWatch, Big Charts, Bloomberg, Streetscape, Money/CNN, Futuresource, Stock Chart, Yahoo Finance, AmiBroker and http://www.newyorkfed.org/

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Capital Research Advisors, LLC,
4185 B Silver Peak Parkway,
Suwanee, GA 30024
770-925-1000
800 -767- 5364
All rights reserved







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