Last week, as COVID-19 vaccination efforts continued, there was speculation about stock market corrections and asset bubbles.
On Sunday morning, Bloomberg reported 63 million doses of the coronavirus vaccine had been administered across 56 countries. In the United States, 21.1 million shots have been delivered – about 51 percent of the vaccinations that were sent to states. At that point, the number of vaccinations in the United States was just over one million doses a day.
According to Ben Levisohn of Barron’s, improvements in the pace of vaccinations could lift market optimism but a market correction is still a possibility.
“…the S&P 500 has been following a pattern typical of recessions since 1990, one that sees the recovery occur in three phases: an initial recovery, a period of consolidation, and a second rebound. The initial recovery has lasted an average of 10 months, with an average return of 48 percent. That was followed by a period of consolidation that lasted from two to seven months and saw stocks sink an average of 17 percent. That was then followed by another rally…The current bounce from the March lows has lasted about 10 months and produced gains of just over 71 percent. If the market follows the historical pattern, it should pull back by spring – but that will be a buying opportunity.”
A survey from Deutsche Bank sparked talk about the possibility of asset bubbles. In a CNBC interview, Jim Reid, who heads global credit strategy at Deutsche Bank, shared results of the company’s January survey. A vast majority (89 percent) of the 627 market professionals who participated saw asset bubbles in some markets. Reid also explained that central bank policies and stay-at-home trading were partly responsible for rising asset prices.
Solid fourth quarter 2020 earnings may be supporting asset prices too. So far, 13 percent of companies in the Standard & Poor’s 500 Index have reported results. John Butters of FactSet wrote, “At this point in time, more S&P 500 companies are beating EPS (earnings-per-share) estimates for the fourth quarter than average, and beating EPS estimates by a wider margin than average.”
Last week, major U.S. stock indices moved higher. The Nasdaq Composite gained 4.2 percent, which was its biggest gain since November 2020.
Data as of 1/22/21
Standard & Poor's 500 (Domestic Stocks)
Dow Jones Global ex-U.S.
10-year Treasury Note (Yield Only)
Gold (per ounce)
Bloomberg Commodity Index
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods. Sources: Yahoo! Finance, MarketWatch, djindexes.com, London Bullion Market Association. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.
HOW IMPORTANT IS FINANCIAL LITERACY? At the end of 2020, the FINRA Investor Education Foundation published a report that found, “…financial literacy has significant predictive power for future financial outcomes, even after controlling for baseline financial characteristics and a wide set of demographic and individual characteristics that influence financial decision making.”
In fact, financial literacy may be more important today than it has ever been. That is because the responsibility for saving, investing, and generating income for retirement has shifted from companies (that managed defined benefit plan assets) to individuals (who manage 401(k), 403(b), and other defined contribution plan assets).
The researchers administered the National Financial Capability Study (NFCS) questionnaire to a cross section demographic at the beginning and end of the six-year research period (2012-2018). Each quiz included five questions focusing on basic principles of economics and finance. These questions have been developed to measure financial literacy and are used in many surveys in the U.S.
Here are some of the questions.
- Suppose you have $100 in a savings account and it is earning 2 percent a year. After five years, how much money will be in the account?
- More than $102
- Exactly $102
- Less than $102
- I don’t know
- Now, suppose the interest rate on your savings account is 1 percent a year and inflation is 2 percent a year. After one year, will the money in the account buy more than it does today, exactly the same as it does today or less than it does today?
- I don’t know
- When interest rates increase, what typically happens to bond prices? Do they rise, fall or stay the same? Or is there no relationship between interest rates and bond prices?
- Stay the same
- No relationship
- I don’t know
- Suppose you owe $1,000 on a loan and the interest rate you are paying is 20 percent per year, compounded annually. If you do not pay anything on the loan, how many years will it take for the amount you owe to double?
- Less than two years
- Two to four years
- Five to nine years
- Ten or more years
- I don’t know
How did you do? If any of these generate questions for you, please give us a call.
- A – More than $102.
- C – Less.
- B – Fall.
- B – Two to four years.
WEEKLY FOCUS - THINK ABOUT IT
“I was gratified to be able to answer promptly, and I did. I said I didn’t know.”
--Mark Twain, American writer, humorist, and lecturer
Securities offered through LPL Financial, member FINRA/SIPC. Investment advice offered through Treiberg Wealth Management, a registered investment advisor and separate entity from LPL Financial. The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance of the global equity securities that have readily available prices. The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market. Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association. The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998. The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones. Yahoo! Finance is the source for any reference to the performance of an index between two specific periods. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. This newsletter was prepared by PEAK. Past performance.