Tuesday, October 19, 2021

Unwrapping 2020

Ask the CFP


Each New Year, we have before us a brand new book containing 365 blank pages. Let us fill them with all the forgotten things from last year—the words we forgot to say, the love we forgot to show, and the charity we forgot to offer.
~ Peggy Toney Horton

Question: What differences and similarities do you see for the economy between 2019 and 2020? 

Answer: Last year was generally very good to those of us fortunate enough to have investments in the stock market. For a variety of reasons that we’ll explore, the economy did quite well in 2019. My wish is for more of the same in 2020. Rather than the 12 Days of Christmas, let’s look at the 12 gifts we’d like to see in the New Year while referencing 2019. 

Economic Gifts

  1. The first component of any economic or personal relationship is gratitude. We live in a country where we have freedom of speech and the right to vote. These two privileges are the path to independence. 
  2. The Federal Reserve set the target inflation rate at 2% to maintain price stability and maximum employment. As of December 20, 2019, inflation was 1.60% according to the Bureau of Economic Analysis. Inflation is a sustained increase in the general price level of goods and services over a period of time. 
    • Inflation, recessions and prosperity are highly correlated to gas prices. Relatively speaking, gas prices are low and a gift to consumers and the economy. To illustrate, in 1976 as a newly licensed driver of my Mom’s red Ford Pinto Station Wagon (Ralph Nader hadn’t warned us yet) the price of gas was $0.59/gallon at the corner Texaco station. The Pinto held 19 gallons, so it took $11.21 to fill a dry tank. Converting this to 2019 dollars, gas would be $2.67, bringing the cost of filling the Pinto to over $50. Looking out the window today, gas prices at the 7-11 are $2.38/gallon.
  3. Unemployment rates are at or below the current 50-year low of 3%. Jobs are good for employees, consumers and the labor market. 
  4. This helped contribute to four quarters of growth in consumption. The hope is for expanded business fixed investment in 2020. 
  5. Information technology has exploded in the last decade. We’re poised for the rollout of 5G which is expected to be a positive catalyst for the future of wireless technology.
  6. The price-to-earnings ratio (P/E) measures a company’s market value per share divided by its earnings per share (EPS). At the simplest level, the ratio identifies what investors are willing to pay for each dollar in earnings. A sustained P/E ratio of six would be a gift to investors. 
  7. The Group of Seven (G7) agreeing on how to untangle trade tension would be yet another present to the world economy. An agreement could help remove uncertainty from financial markets and may offer some relief for investors and businesses. 
  8. Early in my career, the suggested withdrawal rate for retirees was 8% while today it’s closer to 4%. It’s doubtful that we’ll see that again anytime soon, but continuity dictated that there was an 8 in the mix.  
  9. The NASDAQ Composite Index is flirting with a high of nine thousand. NASDAQ is a global electronic marketplace for trading securities. The National Association for Securities Dealers Automated Quotation (NASDAQ) began operations on February 8, 1971, as the world’s first electronic quote system providing transparency and speed. 
  10. The ten-year U.S. Treasury Note yield is currently 1.914% keeping the cost of money relatively low. Low yields and low inflation on a relative basis set the stage for sustainable growth, not too hot and not too cold, just right! 
  11. The stock market is divided into eleven sectors: financials, utilities, consumer discretionary, consumer staples, energy, healthcare, industrials, technology, telecom, materials, and real estate. All eleven booked positive performance last year. Let’s hope that continues into 2020.  
  12. It would be wonderful if there were another twelve months of positive job creation and payrolls like there was in 2019. This would likely help maintain the low unemployment rate and as was stated, jobs are good! 

This is my opportunity to express gratitude for family, friends, clients and readers who enhance the journey. Stay focused and plan accordingly. Best wishes for a new year of health, happiness and good fortune to you and yours. 

There is no guarantee that any statements, opinions or forecasts provided herein will prove to be correct. There is no assurance that any investment strategy will be successful. All investments are subject to risk.  The opinions expressed are those of the writer as of December 24, 2019, but not necessarily those of Raymond James and Associates, and are subject to change at any time based on market conditions and other factors. The S&P 500 is an unmanaged index of 500 widely held stocks. It is not possible to invest directly in an index. Past performance may not be indicative of future results. The data and information contained herein was obtained from sources considered to be reliable, but accuracy and completeness are not guaranteed. “Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.”

This article provided by Darcie Guerin, CFP®, Vice President, Investments & Branch Manager of Raymond James & Associates, Inc. Member New York Stock Exchange/SIPC 606 Bald Eagle Dr. Suite 401, Marco Island, FL 34145. She may be reached at 239-389-1041, email darcie.guerin@raymondjames.com. Website: www.raymondjames.com/Darcie.

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