Household Savings at 60-Year HIGHS!

As I sat down to write this article on Sunday morning, it surprised me to see that the last “Weekly Market Commentary” I wrote was just before the Christmas.  Between the podcasts that I’ve been recording, the 2021 Market Outlook video on our Libertas YouTube page, and the private (clients-only) articles and videos we’ve sent out this first 11 weeks of the year, it seems like a lot of time has already passed as we prepare to turn the calendar into April already!

When observing the stock market, the Nasdaq is “the chart of the year” as it contains the vast majority of the “work from home” stocks that did so well during the last half of 2020.  As we move through 2021, the “open up the economy” stocks seem to be gaining strength as more and more people get vaccinated, and hope for the “old normal” becomes more of a potential reality (and hopefully sooner than later!).

As you can see below, the market had a descent first six weeks and then plunged “under water” (under the 50-day moving average) between mid-February and the first week of March.  Since then, while it came up for air (above the blue, shaded area), it was pulled back down under water again this past week, leaving this short-term in a “neutral” position.

Digging deeper, I added OBV (On-Balance Volume) to the lower-pane of the same chart, below, which calculates whether volume is flowing into, or out of an investment.  As you can clearly see, the volume pressure has already exceeded the highs in February, which is a very positive sign for the market in the near-term.

Think of it like a spring or coil being wound up.  As more “good” volume builds up underneath the surface, the spring can be released and the market can go up… or down, all depending on the direction of the on-balance volume.  In the case of the stock market today and the chart above, the path of least resistance is “up.”

Lastly, one of the arguments I’ve heard from a few friends, clients, but especially on social media is:

“There’s no more money left to invest – it’s all in the market already.” 

This just simply isn’t true.  Aside from the fact that another round of stimulus just went out this past week, unemployment benefits have also been extended, all while the economy continues to open up.

It might take some time to see employment numbers improve to where they were pre-COVID, and the same could be the case for weekly unemployment claims, but things are slowly getting better.

That being said, one of the biggest numbers that may surprise you is the extreme high in personal savings rates, which as you can see below, have exceeded numbers going back 60+ years!  This money is going to go somewhere – whether these households spend the money on things they need and want… or if they invest the money into the market – in both scenarios, it’s not a bad thing for the stock market.

This information comes from JPMorgan’s “Guide to Retirement” booklet, so these aren’t fudged numbers.  Where did all the savings come from?  Think about it:

• The economy gets shut down for 8 weeks.
• Many people lose jobs, but in many situations, income is replaced with unemployment checks.
• Government stimulus is passed in March, 2020 to add an additional “boost” to stimulus each week, on top of unemployment checks.
• In some situations, unemployment checks exceeded the one earned from the job they had been separated from!
• No one is shopping (unless it’s online).
• Restaurants are closed for all but carry-out.
• No one is traveling.
• People are worried about “what’s next?”
• Many used this opportunity to pay off credit card and student loan debt.
• For those who succeeded in paying off debt (or didn’t have any), they saved their money instead.

In a lot of cases, it was almost “forced savings” because there wasn’t really much to do that cost money.

There was a lot of home improvement projects, but many were DIY.  Travel and costs that would previously be spent on “luxury” goods were replaced with “toys” like boats, RV’s, motorcycles, and would you believe it… the previously struggling golf industry started booming again.

Prior to now, local golf courses where I live (in Dublin, OH), such as Tartan Fields and The Country Club at Muirfield were practically giving away memberships with no initiation fees.  Today, Tartan Fields is about to increase their initiation fee for families up to $6,500 with a monthly membership fee of $640/mo.  The Country Club at Muirfield charges a $15,000 initiation fee today, and there’s a waiting list to play golf – you can’t even play golf at the golf club, it’s so busy!  Go figure!

In closing, the national debt being created by all this stimulus is a huge problem that will eventually have to be dealt with.  However, I see that as an ultra-long-term concern, not something that is going to cause a problem in 2021.  Conversely, I think there is a lot of good in the months that have yet to arrive, but one should never invest blindly.  We should never, ever fall asleep on the market – and always have one eye open!

Till next time…

Adam