Tornado Warning
It was a Monday night in San Antonio TX on March 22nd. We got the boys to bed, turned in for the night, and prepared for a long drive to Louisiana the next day. Then, it happened. We awoke to constant lightning every 3 to 4 seconds at 1:15am. After 10 minutes or so of the lightning, hail started pounding down on our 5th wheel. It sounded as if it was going to come through the roof! It was at this time I became a bit uneasy. I checked my phone and went to the tornado application I had on my phone. Sure enough, a Tornado warning had just been issued 10 miles from where we were staying. Our oldest son crawled into bed with us and wondered if everything was going to be ok.
The reality was, I was not prepared. Prior to leaving for our Southern adventure I spoke to a few of my friends that were from the south. They gave me some insight on what to expect and how to prepare should a tornado become a reality for us. Arriving in San Antonio, I thought we would be fine as historically, I didn’t find many records of tornado’s touching down in the area. So, I was not prepared. I did not know where to take my family to a safe place underground. I did not ask the front desk workers what we should do in the event of a tornado warning. I had every intention of doing all the above, but, I didn’t.
Fortunately, no tornado touched down. But I tell you what, I learned a valuable lesson from the experience!
There is only so much in your control when it comes to natural disasters like a tornado. Having a “game plan” and strategy ahead of time is certainly recommended. Where can you find safe shelter? Do you have water and food to last a few days in a readily available bag? Are you watching the weather forecast?
Financial disasters are also something to prepare for. Do you have 3-6 months cash reserves on hand should an unplanned financial event take place? Do you have life insurance in place to take care of your family should you pass prematurely? Is your portfolio structured to fit your tolerance for volatility in the market?
There are a lot of financial “forecasters” out there. Some do a great job and give honest perspectives on where they see markets and the economies around the globe heading. Others, try scare tactics to get investors to buy certain investments that traditionally do well when the markets crumble.
Our kids always joke about how the “weatherman” is always wrong. The weather constantly changes. Sometimes, though, they are quite accurate in their forecasts. They have tools that guide their forecasts and what they report.
Similarly, as a Financial Advisor, there are certain “indicators” I watch to help guide decision making. One thing I’ve always valued is talking to small business owners. They are the life blood of the economy. I recently put out a video on inflation and would encourage you to go back and watch it. In terms of current investment strategy, I think it is potentially possible to see good returns in the stock market while the bond market may struggle. As interest rates rise, the price of bonds go down. This is not a recommendation to abandon fixed income investing entirely, but, be mindful of the “forecast”.
The 1st quarter of 2021 was eventful to say the least. What times we are living in. It is a privilege to be a part of your lives. We look forward to continuing to be of service!
Positive Quote:
"True humility is not thinking less of yourself; it is thinking of yourself less."
- C.S. Lewis
Fun Fact:
We've seen 18 States in the last 8 months! What a beautiful country.
The Markets
First Quarter through March 31, 2021
As we closed out 2020, the overwhelming sentiment entering January was that it couldn't get much worse. Unfortunately, January did not start out on a high note. During the first week of the month, protesters stormed the United States Capitol, leading to violence, the disruption of the presidential election certification, and several deaths. Nevertheless, the inauguration of Joe Biden as our 46th president took place as scheduled. January also saw the emergence of virus mutations, the uneven distribution of COVID-19 vaccines, and the gradual relaxation of pandemic-related restrictions. Also during January, a new phenomenon in stock price manipulation emerged involving several companies, including a video-game company. Ultimately, stocks closed the month mixed, with the Russell 2000 and the Nasdaq gaining, while the Dow and the S&P 500 fell. Treasury yields, the dollar, and crude oil prices advanced.
Major equity indexes reached record highs in February, only to pull back by the end of the month. Fearful that inflationary pressures would mount, investors favored value stocks over growth, pushing small-cap and mid-cap stocks higher. Investors were encouraged by President Joe Biden's $1.9 trillion stimulus proposal, accelerated vaccine distribution, and better-than-expected fourth-quarter corporate earnings. By the end of February, each of the benchmark indexes listed here posted gains led by the Russell 2000, which advanced more than 6.0%. The yield on 10-year Treasuries continued to grow, crude oil prices pushed past $61 per barrel, and the dollar rose. Only 50,000 new jobs were added in February, although unemployment claims decreased.
Stocks continued to push higher in March. Several of the benchmark indexes posted noteworthy gains including the Dow (6.6%), the S&P 500 (4.2%), and the Global Dow (4.0%). The Russell 2000 (0.9%) and the Nasdaq (0.4%) advanced moderately. Among the sectors, industrials (8.1%), utilities (7.4%), consumer staples (6.5%), and materials (6.4%) led the way. Treasury yields and the dollar advanced, while crude oil prices and gold fell.
Overall, the first quarter was definitely eventful. Additional federal stimulus payments lined many pocketbooks; a group of amateur traders banded together through social media to drive shares of a video gaming company to astronomical heights; interest rates jumped, stoking fears that inflationary pressures were rapidly building; and equities ultimately enjoyed robust returns. The small caps of the Russell 2000 gained nearly 12.5%, the Global Dow climbed 9.4% and the large caps of the Dow (7.8%) and the S&P 500 (5.8%) posted solid gains. Tech shares, which had driven the market for much of 2020, slumped during the quarter, but still gained enough ground to push the Nasdaq up by almost 3.0%. Energy shares posted some of the biggest gains in the quarter, with that market sector surging over 30.6%. Financials jumped 18.0%, followed by industrials (12.0%), materials (10.8%), and real estate (10.0%). Only information technology failed to advance by the end of the quarter. The yield on 10-year Treasuries climbed more than 80 basis points. Crude oil prices increased and the dollar rose. Gold prices fell nearly 10.0% in the first quarter. Year to date, the Russell 2000 is well ahead of its 2020 year-end closing value, followed by the Global Dow, the Dow, the S&P 500, and the Nasdaq.
The price of crude oil (CL=F) closed at $59.32 per barrel on March 31, lower than the February 26 price of $61.50 per barrel but well above the December 31 price of $48.52. The national average price of retail regular gasoline was $2.852 per gallon on March 29, up from the February 22 price of $2.633 and 27.0% higher than the December 28 selling price of $2.243. The price of gold finished March at $1,708.40 per ounce, lower than the February 26 price of $1,728.10 per ounce and significantly below its December 31 closing value of $1,893.10 per ounce.
Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.
Eye on the Month Ahead
The economy in general, and the stock market in particular, should continue to progress as more vaccines are rolled out and more jobs are made available. Investors will continue to watch for signs of escalating inflation, despite the Federal Reserve's forecasts to maintain interest rates at their present levels through 2023.
Data sources: Contribution provided by Forefield. Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation); U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.
The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. The U.S. Dollar Index is a geometrically weighted index of the value of the U.S. dollar relative to six foreign currencies. Market indices listed are unmanaged and are not available for direct investment.
I look forward to continuing to guide clients through 2021 and beyond. If you have a friend or family member that you think would benefit from working with me, please don’t hesitate to make the introduction. Thank you for your trust and business.
