Weekly Market Commentary May 6th, 2021

The Markets

It’s spring and economic recovery is in the air.

Last week, the Bureau of Economic Analysis reported the U.S. economy grew at a 6.4 percent annualized rate for the first three months of 2021. Canadian numbers have not been released yet, but National Bank estimated that the Canadian economy will grow at a slightly more modest 5.6 percent in 2021 (Their estimate for the U.S. is 6.6 percent for the year). While that’s good news for companies and workers, asset managers are checking their expectations.

The stock market reflects what investors think may happen in the future. During the past year, major stock indices moved higher as investors anticipated vaccines and economic recovery. Since its March 2020 low, the S&P 500 has gained 88 percent, while the S&P/TSX Composite index has increased by 70 percent.

Amidst strong signs of recovery, some asset managers are positioning for “inflation and tapering,” according to a source cited by Naomi Rovnick of Financial Times. “Investors have topped up their cash holdings at the fastest rate since March 2020 as debate intensifies over whether stock markets will continue rallying now the U.S. economic recovery from the pandemic is firmly under way.”

Investors were feeling cautious last week, but there were no signs of tapering, which can occur when the U.S. Federal Reserve begins to buy fewer bonds. On Wednesday, the Fed left its supportive policies in place.

When the Fed begins to change course and rates move higher, equity market valuations may adjust. “The main worry for stocks is that higher bond yields translate into lower equity valuations. Higher yields reduce the current value of future profits and therefore can reduce earnings multiples,” reported Jacob Sonenshine of Barron’s.

Profits were strong during the first quarter of 2021. Companies continued to report exceptional earnings last week. With 60 percent of firms in the S&P 500 index reporting, the blended earnings growth rate was 45.8 percent. More than 8 of 10 of these companies have reported better than expected earnings, reported John Butters of FactSet.

Major North American stock indices finished last week flat to down. Rates on 10-year Treasuries and government bonds edged higher. If you have any questions or concerns about your investment portfolio or recent market conditions, please don’t hesitate to give us a call.

Source: Refinitiv
 

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Estimates suggest there will be 25 million by 2100

Take a guess: electric vehicles, household robots, wild elephants, centenarians, or streaming services per household?

• Electric vehicles. There may be far more than 25 million – estimates suggest 145 million – on the road by 2030.
• Household robots. Domestic robots that offer companionship or help with tasks like lawn mowing, vacuuming, and mopping are becoming popular. Estimates suggest about 55 million domestic bots will be sold next year.
• Wild elephants. From 1989 to 2018, the number of elephants in the wild doubled to 34,000, reported Earth.org.
• Streaming services per household. Currently, the average number of streaming services per household is four. There’s room for growth, but probably not that much.
• Centenarians. The world is in the midst of a longevity revolution and, by 2100, there may be as many as 25 million centenarians – people age 100 or older – around the globe, according to a source cited by Science Direct.

The world’s 65 and older population is growing rapidly.

According to the most recent population estimates from the United Nations, “…1 in 6 people in the world will be over the age 65 by 2050, up from 1 in 11 in 2019. The latest projections also show the number of people aged 80 or over will triple in the next 30 years. In many regions, the population aged 65 will double by 2050, while global life expectancy beyond 65 will increase by 19 years.”

Longevity deserves more thought than it often receives. It is an essential part of every financial and retirement plan, influencing savings goals, investment choices, and retirement income levels. Yet, people often underestimate their potential longevity.

In Canada, the average life expectancy at age 65 is 15 years, according to Statistics Canada. Consequently, many people assume they should plan to live to age 80. However, the StatCan estimate is an average. Half of 65-year-olds will live beyond age 80.

When it comes to planning for the future, having above average expectations for longevity may be a good idea.

Weekly Focus - Think About It

“I am not more gifted than the average human being. If you know anything about history, you would know that is so – what hard times I had in studying and the fact that I do not have a memory like some other people do…I am just more curious than the average person and I will not give up on a problem until I have found the proper solution. This is one of my greatest satisfactions in life – solving problems – and the harder they are, the more satisfaction do I get out of them. Maybe you could consider me a bit more patient in continuing with my problem than is the average human being. Now, if you understand what I have just told you, you see that it is not a matter of being more gifted but a matter of being more curious and maybe more patient until you solve a problem.”

--Albert Einstein, Theoretical physicist

Best regards,