As 2019 was ending, we positioned portfolios ahead of what we thought might be a contentious 2020: election year, late cycle, tariffs, etc. You may have heard us say, “We did not have a global pandemic on the 2020 bingo card!”
Similarly, as we look back at March of last year, anyone calling then for the S&P 500 index to hit 4,000 on April 1st, 2021 would have been called an (April’s) fool!
Yet, the index closed at 4,020 on the first day of this month, an outstanding 66% increase from a year ago. Calling for 5,000 on April 1st, 2022 may not sound completely crazy…after all, this would be “just” a 25% increase….
Humor aside, the economic outlook for the next few quarters looks positive. U.S. GDP is projected to grow at 6% in 2021, the fastest pace since 1984 and possibly since 1950. The latest manufacturing and employment data are all headed in the right direction. Consumer confidence has returned, and restaurants are adding back staff and patrons as greater than one in five Americans are now fully vaccinated against COVID-19. Food service and hospitality businesses across America are reportedly struggling to find workers fast enough to meet demand. We are returning to normal.
According to Jamie Dimon, the CEO of JPMorgan Chase, this boom could run into 2023 as he sees the U.S. economy entering a “Goldilocks moment,” buttressed by “excess savings, new stimulus savings, huge deficit spending, more QE, a new potential infrastructure bill, a successful vaccine and euphoria around the end of the pandemic.” Even expectations for higher inflation readings, in the next couple of months, are being discounted as transitory from a short-term mismatch between demand and supply chain bottlenecks.
As investors, we must balance the potential for return with the risk associated with such investment. Persistent inflation and higher interest rates, or conversely a return of deflationary headwinds, higher corporate and personal tax rates, and stretched equity valuations are all good reasons to be cautious from here.
In summary, the market has a lot of good things going for it, but as we roll into spring, we cannot relax. Can the market continue to move higher? Absolutely. And we will continue to be discipled about our implementation schedules. Can the market fall into a correction? Of course, it can. And if it does, we will make investment decisions driven by our asset allocation process.
As spring brings new hope, we prefer to have a plan and be prepared rather than make foolish predictions.
If you have any questions or want to have a conversation about the market or your portfolio, please contact Liz, Ed, Fred, Scott, Tyler, or myself. Your Sendero team is ready to help.
Amaury de Barros Conti
Partner | Vice President, Investments