C + I + G = MC^2

April 30, 2021

The S&P 500 closed out the month on a high note, propelled once again by more strong corporate earnings, positive economic reports, and accommodative fiscal and monetary stimulus. Tech giants Microsoft and Amazon reported this week, adding to the recent round of stellar earnings reports. Pandemic-fueled spending on cloud services, videogaming, and ecommerce sales helped bolster their bottom lines. This week’s economic reports also showed that consumers were more than ready to spend their most recent stimulus checks, sending Q1 GDP, personal income, and spending to levels rarely seen. Not to be outdone, the Federal Reserve did its part to boost investor sentiment by affirming it would continue to hold rates steady and maintain its bond buying program to help further fuel post-pandemic economic growth. China’s manufacturing and services sector reports did flash some cautionary signs by failing to meet estimates. The backslide is thought to be related to supply chain constraints, particularly in semiconductors, which could bode poorly for inflation more generally as we move into summer. Despite markets slipping on Friday, the S&P 500 managed to close out the month up 5.24%, bringing the index’s year-to-date gain to 11.32%.

U.S. Q1 2021 GDP Booms

U.S. GDP rose 6.40% in Q1 2021. That was the second-fastest pace for economic growth since Q2 2003. The economy was firing on all cylinders, powered by gains in consumer spending (C), residential and nonresidential investment (I), and who would have figured – government spending (G). Consumer spending, which accounts for roughly 68% of the economy, was especially robust during the quarter, up 10.70% as many Americans spent their stimulus checks. The increase was a sharp acceleration from Q4 2020’s 2.30% increase. Spending on goods remained robust, up 23.60%. Meanwhile, spending on services rose a more modest 4.60% as certain regions of the country with high Covid case counts were slower to loosen restrictions in the first quarter. Despite the stellar results, the Bureau of Economic Research has yet to declare an end to the recession as GDP in total dollars has yet to surpass its previous peak. This is simply a matter of time however – being a mere $170 billion (annual, seasonally adjusted) or 0.86% away from recapturing that level.


Consumers Set to Tap Their War Chests

Boosted by fiscal stimulus checks and other government aid, household income surged 21.1% in March. That was the largest monthly increase back to 1959, when records first started being kept. To put this into perspective, Americans had roughly $19.12 billion. This declined -1.89% to 18.76 billion at its lowest point during the pandemic to date. Today, personal income sits at $24.21 billion or 26.6% higher than it was prior to COVID and just as we sit on the cusp of returning to normal. For believers in unintended consequences, we believe you need to look no further. With income comes spending, which rose a healthy 4.2% in March. That was the highest month-over-month increase since last summer. Despite the rise in spending, households continue to sock away or invest their income. The personal-savings rate jumped to 27.6% in March, up from a still absurdly high 13.9% a month earlier. That is a sharp uptick from the typical 8% personal savings rate prior to the pandemic. The rise in the personal savings rate helped push personal savings to $6.04 trillion. Flush with cash, and 30% of Americans now fully vaccinated, the throttling in how this cash ultimately gets circulated back into the economy will determine if we have sustained, healthy growth or if we explode on takeoff.


China Maintains its Post-Pandemic Recovery But Concerns Arise

The Chinese economy continued its post-pandemic recovery. The official manufacturing purchasing managers’ index hit 51.1 in April. Numbers above 50 indicate expansion while numbers below 50 indicate contraction. While the figure managed to remain in the positive column, it failed to meet estimates of 51.6 and was a retrenchment from 51.9 in March. The most common interpretation to the slippage was that China, like much of the world, is still experiencing supply chain disruptions at a time when global demand is accelerating. These limitations are particularly acute in semiconductors, which China relies upon as the world’s predominant electronics assembler. As such, it is the output capacity rather than global demand factors currently weighing on China’s growth. China’s services sector also posted healthier, but still diminishing, marginal growth. The non-manufacturing index registered 54.9 down from March’s reading of 56.3. China’s fortunes are bound to be generally positive as the rest of the world starts to reopen, but Covid remains a flash point in several areas around the world, which could affect demand. Furthermore, China has recently started cracking down on fintech financing companies, which have acted as a parallel banking system within China, and the increased regulation could reduce capital and ultimately spending.
The storyline for markets has not changed all that much over the last month. The market is taking its cues from Washington, and for the time being the combination of widespread vaccinations, massive stimulus savings and cheap money are the magic equation for growth and earnings. Watching Washington these days, we can’t help but be reminded of the classic high school, differential calculus problem where you’re filling a bathtub (in this case an economy) with water (or dollars). You want the bathtub to rise at a certain rate, but rather than simply plugging the bathtub and filling it at the stated rate, you’re suspicious of the plug (industry, business owners and investors) and you instead decide to fill it ten times faster (infrastructure plan). To offset this, you decide to drain it with buckets (corporate, individual and investment taxes) only to refill it again, again and again. How much time you have until the leaky buckets (behavioral changes in response to taxation and governmental inefficiency) result in a completely dry bathtub? What once started out as a nice restorative bath has quickly shaped up to be a scenario where we are afraid we’re all about to get soaked.  
The Week Ahead

It will be another big week for markets with April nonfarm payrolls as well as ISM manufacturing and non-manufacturing reports on tap.

Is it Time for “The Talk” with Your Parents?

It can be an uncomfortable topic to approach, but an important conversation for adult children to have with their aging parents is their financial health, long-term care plans, and their desires for how they want to be remembered. Knowing how parents manage their finances and having discussions about their desires will allow family members to be better prepared to help them in the future if or when the need arises. It can save ourselves and our loved ones the burden of added stress and uncertainty.
It may be easiest to begin with a list of information that adult children will need to gather in order to assist their parents. Below is a checklist that can help guide the conversation. This list encompasses both financial issues and healthcare choices: they are closely intertwined, and both can potentially impact a family financially as well as emotionally. The best time to have these conversations is early, and ideally when parents are in good mental and physical health. It may take some time for parents to open up and feel comfortable sharing. Experts advise approaching the conversation with a lot of empathy and patience.

Ask where to locate the following important documents:

  • Will and estate plan
  • Marriage and birth certificates
  • Military records
  • Titles to property and vehicles
  • Insurance policies, such as life insurance, Medicare, Medicaid, and supplemental insurance
  • Powers of attorney
  • Advanced directives
  • Bank account records
  • Credit card statements
  • Mortgages and other debts
  • Tax returns from the last 3-7 years
  • Social Security statements
  • Pension, annuity, and investment documents
  • Dues paying memberships
  • Usernames and passwords for online customer portals
  • Combinations and/or keys for safety deposit boxes

Develop a list of contact information, including phone numbers and emails, for the following advisors:

  • Attorney
  • Financial advisor
  • Insurance agents (property/casualty and life)
  • Accountant / CPA

Make a medical contact list of parents’ doctors and note details of any medications that your parents are taking, including where and how often their prescriptions are filled. In a medical emergency, it can be important to communicate any regularly taken medicine to doctors.


Talk over your parents’ expenses and develop a strategy for meeting their living and medical expenses if something were to happen. Discuss caregiving options and long-term plans such as moving to a retirement community with continuing care options or to an assisted living facility if their health should require that. If they prefer to stay in their home, discuss any long-term care insurance needs that would cover the cost of having an aide assist them.


Ask about their funeral wishes. This might be hard to bring up, but knowing what your parents would want will allow you to honor their wishes. One of our clients approached her parents to begin these conversations and learned that her mother’s wish is for her adult children to have an invitation-only service followed by an “after party” that would include a “roast and toast” with family and close friends. Our client’s mother said she wanted everyone to have a good laugh on her and then have her ashes spread in the ocean. Our client might not have learned of her mother’s specific requests had she not asked.

If this seems overwhelming – which it is – our experienced advisors can provide guidance to our clients and their families. 





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