Physicians' Guide to Wealth

A guide for anyone pursuing financial independence

Q
Employment Teetering

Mar 10, 2021

Last week the U.S. Department of Labor reported that the number of those filing for unemployment rose to 745,000 for the week ending February 27th from the prior week’s revised amount of 736,000. Expectations for this reporting period were a bit higher at 750,000 filings. Also, 437,000 people applied for the Pandemic Unemployment Assistance program, which covers workers that do not qualify for initial claims. In comparison to January 9, 2020 report, only 224,000 people filed for unemployment, or 526,000 fewer people than what was reported last week.

The U.S. Bureau of Labor Statistics also reported last week that total nonfarm payroll employment rose by 379,000 in February, and the unemployment rate was little changed at 6.2 percent. In February, most of the job gains occurred in the harder-hit industries of leisure and hospitality, with smaller gains in temporary help services such as health care and social assistance, retail trade, and manufacturing. Employment declined in state and local government education, construction, and mining.

Automatic Data Processing, Inc. reported last week that private businesses in the US hired 117,000 workers in February of 2021, well below market forecasts of an increase of 177,000 and following an upwardly revised 195,000 gain in the previous month. The service-providing sector created 131,000 jobs led by trade, transportation & utilities (48,000); education and health (35,000); leisure and hospitality (26,000); professional and business (22,000); other services (3,000); while financial activities showed no change and the information sector lost 3,000 jobs. Private payrolls in the midsized companies had the newest payrolls with an increase of 57,000 compared to small firms of 32,000 and large companies of 28,000.

More indication of a slow start for 2021 in the employment marketplace is that the average workweek for all employees on private nonfarm payrolls declined by 0.3 hours to 34.6 hours in February of 2021. Evidence of the pandemic impact on consumer buying habits is that January’s average workweek was uncharacteristically more than the previous holiday season months indicating how few people ventured to malls and stores for human-to-human purchasing vs. online shopping. In fact, January was the highest average workweek since March 2020 based on last week’s U.S. Bureau of Labor Statistics employment report.

It seems that employers have hired all the people they need, and the employment market has reached its fullest capacity under current government health restrictions. However, the economy may be on the cusp of another boost of economic activities as restrictions on consumers and businesses are being relaxed. Four states have completely removed all mandatory Covid related health restrictions (TX, FL, MO, ID), and all other states except Wisconsin are in stages of relaxing Covid related health restrictions. For a good reference, click this link to USA Today to view their interactive map that illustrates and outlines all the state’s health policies. April is historically the time that the pace of economic growth begins to accelerate as better climates prompt more consumer activity and spending that includes home improvements, family activities, entertainment, and vacations. Lord willing that Covid infection and mortality rates don’t spike as the US begins the recovery road back to normalcy, the US economy could lead the rest of the world in 2021 economic growth. This past weekend above the fold headline in the Wall Street Journal was “Economy Looks Set for Strong Recovery”. The journal cited the same employment reports and the positive developments of employment in leisure and hospitality.

The major indices have surprised investors with unusual rallies and selloffs in just the first 66 days of 2021. The S&P 600 Small Cap Index and S&P 400 Mid Cap Index both began their rally in November that had formerly negative YTD returns on November 1, 2020. However, since then, these indices have outperformed not only the S&P 500 but also the high-flying NASDAQ that had a 43% return in 2020. Since November 1, 2020, the Small Cap has trounced all other indices with a 50.46% return.

The S&P 600 rally continues to lead the group YTD with a 20.54% gain.

We referenced the development of leadership reversal in our December 16, 2020 UPdate, stating:

“However, no sector or index remains the top dog forever. It’s only a matter of time that institutional investors will begin looking for new investment opportunities with some of the best prospects found in underperforming sectors. Investors may begin making this shift in their portfolios to take advantage of potentially discounted prices for greater future gains, increase their diversification, or to alleviate concerns the top-performing equities may be running out of steam.”

We mentioned in this UPdate the curiousness of institutional investors making the shift to more aggressive allocations to smaller companies considering more Covid related warnings by health officials and politicians. Yet again, institutional investors prove to have a better crystal ball as economic activity has remained constant and now on the verge of increased economic growth as all but one state are allowing businesses to increase customer capacity.

NASDAQ is uncharacteristically trailing the group with a YTD return of only 1.03%. Our view is the sector is taking a breather from the previous two historic years of an 86% cumulative return. Only Google, with a terrific start of 2021 with a 17.9% gain, of the FAANG tech group (Facebook (FB), Apple (AAPL), Amazon (AMZN), Netflix (NFLX), and Google (GOOG)) has a positive return YTD. Today, NASDAQ popped over 4% intra-day.

What Does This Mean to Me?
We maintain our favorable rating on the US economy and stock market. The major indices have been in a flat due to the slight decline for the past several weeks due to concerns of rising treasury yields that may prompt rising interest rates, slowing economy due to renewed Covid health restrictions, and stagnant employment hiring. However, the indices are all well above their 200 Day Moving Average, and buying activity by institutional investors seems to indicate their overall positive view of the market as they increase their stock holdings every time the market takes a step back (as evidence by today).

Please give us a call or send an email if you have any questions about this UPdate or your accounts. It’s the start of what looks to be another wild year, and we welcome the opportunity to be on your team to navigate through this year.

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