Major indexes were mixed last week as the Dow Jones Industrial Average posted a very slight loss and the S&P 500 was up fractionally. The tech-heavy Nasdaq posted the best performance coming in with a 1.55% gain.
The Delta variant slowed the pace of economic recovery in August. The Labor Dept. reported that just 235,000 jobs were added last month. To put that in perspective, 962,000 jobs were added in June and 1.1 million were added in July. For August, analysts had expected job growth of 720,000. There is still good news on the job front. Major employers are still ramping up hiring. Amazon.com Inc. announced last week they want to hire 55,000 people for office and tech positions. Walmart Inc. is hiring 20,000 workers ahead of the holidays crunch period and beyond. And don’t forget, there are still 10 million job positions available.
First Trust is one of the several companies who’s Exchange Traded Funds we use in our clients’ portfolios. Their chief economist, Brian Wesbury, is one of several I’ve followed for a long time. Their Capitalized Profits Model was recently updated. I found it quite interesting and thought you would enjoy reading a synopsis.
At the beginning of 2021, the S&P 500 stood at 3,756. Mr. Wesbury’s target for the S&P 500 for the end of 2021 was 4200. Many people scoffed at how bullish his projection was, but the index easily hit that target and continued moving upward where it closed last week at 4535. His updated projection now calls for a price target of 5000 for the S&P 500 by the end of the year. Earnings growth is the main reason for the increase. For the second quarter, corporate profits were up 9.2% from the first three months of 2021 and up a whopping 15.8% from the pre-Covid peak in late 2019.
Their formula actually calls for a much higher price target but they believe other factors need to be taken into consideration. They are; an income tax increase, the Fed raising rates more quickly and another lockdown caused by the Delta variant.
The chart below from First Trust shows how their model has performed with the actual price movement of the S&P 500. Please note, these are projections are not a guarantee of what will happen. As we all know, forecasts are like noses….everyone has one.
|
If you have any questions, please contact me.
- Global air cargo planes are flying at almost 90% capacity. The record amount of goods being shipped around the world is due to increased consumer demand and parts-hungry manufacturers.
- Europe hit their target of having 70% of the population fully vaccinated by the end of summer. Last week, the EU issued a recommendation to national authorities to halt nonessential travel from the U.S.
- As of Monday, September 6, an estimated 7.5 million out-of-work Americans will stop receiving federal unemployment benefits insurance. The loss of $300 in weekly benefits has been paid since late December 2020. Many economists believe this will help with over 10 million jobs that have been going unfilled in the U.S.
- China Evergrande Group, one of China’s largest residential developers has delayed payments to some suppliers and halted some current projects. The cash-strapped, highly indebted company warned it may default on some of its borrowings if liquidity issues can’t be resolved. Over the last few years, analysts have been concerned about overbuilding in many Chinese locations. In 2020, Chinese regulators told developers to reduce their leverage before taking on more debt.
- The U.S. isn’t the only place where rising prices are a concern. Inflation in the eurozone hit its highest level in nearly a decade. Consumer prices were 3% higher than a year ago in Europe.
- The median sales price of a new home sold in the U.S. in June 2021 was $390,500, an all-time high both on a nominal basis and an inflation-adjusted basis according to the Census Bureau.
- Wells Fargo and Fitch Ratings analysts both have estimated the total damages from hurricane Ida could be between $15 – $20 billion. In contrast, hurricane Katrina, 16 years ago to the day Ida made landfall, caused a record $65 billion in damages.