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MARKET COMMENTARY

February 12, 2021

Quiet Week as Markets Await Stimulus

February 12, 2021

Markets continued to float higher this week as companies continued to report better than expected earnings and as investors eyed a new stimulus package. Although details still need to be ironed out over who will qualify for Biden’s proposed $1,400 stimulus checks, they are expected to reach millions of households in the coming weeks. With the ink not even dry on the current stimulus plan, House Democrats unveiled additional stimulus proposals this week that seek to boost the child tax credit up to $3,600 for at least a year while also raising enhanced unemployment benefits to $400 per week through August. Markets were bullish on the proposals amid an otherwise light week for economic news. Jobless claims and consumer prices were the only noteworthy items on tap. For the week, the S&P 500 added another 1.23% to close at a new all-time high of 3,934.83.
 

Businesses Shed Jobs Amid Slow Vaccine Rollout

Businesses continued to shed jobs as another 793,000 people filed for unemployment benefits in the past week. Although jobless claims fell by 19,000 from the prior week, they still remain very elevated as the ratio of jobless Americans to open positions stood at 1.74 as of December according to the latest data from the Bureau of Labor Statistics. A lower ratio reflects better conditions for workers looking for jobs while a higher ratio suggests better conditions for employers looking for less expensive labor. The ratio has stubbornly remained at 1.70 since July compared to pre-pandemic times when the ratio was about 0.70. Fortunately, the tide seems ready to turn in job seekers’ favor as coronavirus cases in the U.S. appear to be on the decline, vaccine production is set to ramp up in the coming months, and hard-hit sectors like the hospitality industry have boosted payrolls amid a slow resumption in business activity.
 

Consumer Prices Remain Flat

Consumer prices rose 0.30% in January on higher gasoline prices but this was still lower than December’s 0.40% increase. Despite the back to back increases, inflation remains completely benign with little signs of inflation. Year-over-year, consumer prices are up a mere 1.40%. Core consumer prices, which exclude volatile food and energy costs, are also only up 1.40% from the year ago period. Overall, consumer prices remain well below the Fed’s 2.00% target level of inflation. The modest price inflation should continue to allow the central bank to keep interest rates low for an extended period of time in order for the economy to maintain its post-pandemic recovery.
 
As we said at the top, it was a quiet week for markets with a positive bias maintained by investors awaiting details on the next round of stimulus. The enthusiasm over stimulus aid managed to balance lingering concerns over the slow vaccine rollout. Inflation hedging has emerged as a popular theme of late, fueling speculation in cryptocurrencies and commodities alike, but the data suggests that prices are stable and consumers are reigning in their spending somewhat. We’ll have to wait until the economy fully reopens to really know how this plays out, but at the moment the only recognizable signs of inflation are in certain financial assets and housing.
 
 
The Week Ahead
It will be a relatively quiet week for economic data with consumer prices and jobless claims being the highlights of the week.
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Surprising Pandemic Shopping

We can now add another item to the list of things in high demand since the start of the pandemic. Along with toilet paper, baking ingredients, fitness equipment, loungewear, home décor, and laptops, people have been purchasing more life insurance.

The Wall Street Journal (WSJ) reported this month that applications for life insurance policies surged in 2020 in the U.S., with the industry experiencing the highest year-over-year annual growth rate since 2001, according to MIB Group Inc., an insurance industry organization that tracks applications. Over the past ten years, the percentage of Americans with life insurance has been declining, with just over half of American adults reporting having a life insurance policy in 2020, down from 63% a decade earlier, according to the Life Insurance Marketing and Research Association. In this pandemic, many people who may have put off buying life insurance decided it was time to get this piece of their financial house in order, particularly for those under age 45. Applications were up 7.9% in that age group, compared with a 3.8% increase for consumers 45 to 59 years old, and a small decline for those 60 and older. Life insurance offers protection if a primary breadwinner passes away: it can fill in the immediate gap in income for a family, help pay off a mortgage, and cover other expenses.

Experts say concerns about job security and an uncertain economy drove individuals to seek out a financial stop gap to protect their families. Many employers offer group life insurance as part of their employee benefits package, but the pandemic brought business closures and layoffs. The unemployment rate jumped to 14.8% in April 2020 from 3.5% in February 2020. Individuals who were furloughed or lost their jobs were losing their life insurance benefits and looking for ways to replace it. Additionally, the amount of life insurance offered through an employer typically isn’t enough for employees with a non-working spouse, a mortgage, a family, or special needs dependents, so workers often augment their employee insurance with supplemental coverage. In addition to the pandemic’s impact on the economy and employment figures, the death toll from COVID seems to have had an impact on Americans’ sense of mortality and desire to provide for loved ones should something unexpected happen.

The WSJ states that many large insurers reported record sales last year. New York Life Insurance Co. realized its best December ever for the 175-year-old company, with double-digit percentage increases in both the number of life insurance policies sold and new sales premium. New sales premium topped $1 billion at Northwestern Mutual Life Insurance Co. for the first time, nearly an 8% increase over 2019.

Financial security has become a priority for many Americans over the past year. Some life insurance companies have adjusted their practices to help individuals whose income has been affected due to layoffs or furloughs as a result of the pandemic, instituting grace periods for payment of premiums or making other accommodations to allow policyholders to retain coverage. Others have revised their medical exam requirements to help more individuals purchase insurance policies in lieu of stay-at-home orders, with some waiving the in-person medical exam. Our advisors recommend that anyone who provides financial support to a dependent have enough life insurance to replace that support for as long as it’s needed. Married couples — even those without kids — can use life insurance to ensure that each spouse can maintain their standard of living if the other spouse passes away. If you have any questions about your life insurance coverage or the type of policy that may be right for your circumstances, please do not hesitate to call our office to speak with one of our advisors.

 

 

 

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