Making $ense of It with Linda P. Erickson

February 1, 2021

Over the past several months it has proved almost impossible to make sense of anything. While we have not moved too much off this mark, some perspective in this new year offers a sliver of clarity.

Why have markets moved dramatically up in an environment of chaos, uncertainty, and severe economic distress? Everyone has an opinion, and the variance here is astonishing. My take on this profoundly perplexing question is the following:

1.      Markets are forward looking. While daily volatility increased, the overall trend moved up. Markets anticipated and, we expect will continue to anticipate the economic growth in a Post-Pandemic economy.

2.      Tech stocks pushed the Indexes higher because just a few names make up an outsized percentage of the widely watched Indexes. These tech companies enabled much of the white collar workforce to keep on working. In all probability, the forced “work from home” advanced the tech transition, in many cases leading to greater productivity in the economy and greater earnings capability for these same companies.

3.      While Industrials have lagged in the Indexes, their lower valuations are compelling when we focus, as we have seen recently on the “getting back to work” economy we expect in the latter part of this year. Recently we have observed substantial money flows into Industrial stocks, and the sentiment surveys suggest a renewed confidence in those sectors of the economy. Again – the markets are forward looking.

4.      Interest rates are low and expected to stay low. Chairman Powell has repeated this message many times over the past year. Low interest rates enable two things: higher p/e ratios on stocks (the price can rise higher relative to its earnings) and lower borrowing costs for companies who need to borrow to stay alive until the “back to work” vision is realized. Profitable companies enjoy outsized valuations and zombie companies survive to possibly see a better day.

5.      Government support for those in the service industries who cannot work because their place of work is shuttered keeps this segment of the population, along with the workers who never missed a day or a paycheck, buying “stuff.” While we may not be able or we may not be comfortable buying services yet, we all have learned to buy what we need, and what we want, online. The consumer represents 70% of the economy, better known as GDP, and if the consumer remains healthy in an otherwise distressed and depressed employment picture, markets did and will react positively.

We expect the economy to grow this year. Most thought leaders on this subject expect some form of Global growth – maybe not “synchronized growth” but perhaps a rolling growth as the COVID virus is contained. Wealthy countries will emerge first; poorer countries will likely lag into 2022 or beyond. We expect a “K” type of recovery in the US – wealthier, white collar recovery and expansion while service and blue collar recovery lags. The same might be said for the Global economy – wealthier countries emerge first and faster while poorer countries will lag. Despite the headwinds lingering over the year, and the likelihood of market volatility disruption, we expect both leaders and laggards to advance as we move through the year.

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The views stated in this letter are not necessarily the opinion of Cetera Advisor Networks LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change with or without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results. Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing.

All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful.

Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing.

The return and principal value of stocks fluctuate with changes in market conditions. Shares when sold may be worth more or less than their original cost.

Linda P. Erickson, CFP?

Financial Advisor

Erickson Advisors

301 North Elm Street, Suite 301

Greensboro, NC 27401

336.274.9403 / ericksonadvisors.com

Registered Representative offering securities and advisory services through Cetera Advisor Networks LLC, member FINRA/SIPC, a broker-dealer and Registered Investment Advisor. Erickson Advisors is independent of Cetera.