US Economy – Q1 2021

Risks in 2021

  • Rate of vaccine deployment and reducing COVID19 cases / variants
  • Rate of economy recovery from COVID19
  • Extreme weather shifts due to global climate risks
  • Inflation and government debt
  • Asset bubble (both real estate from low interest rates, and equities from the influx of retail investors)

Technical Analysis of S&P500

  • Price target between $3,500 to $4,100
  • Technically speaking, there is more downside than upside in the current market; but high degree of uncertainty due to the increase in stimulus driving up the PE of the market
  • Since March 2020, Nasdaq 100 has outpaced the S&P500 by 13%
  • Tech is leading the charge, mainly due to technological advancements forced upon by COVID19 (shift to e-commerce and digital environment)
  • If correction was to come in the short-term, my prediction is that tech would be hit the hardest, but in the long-run, there will be a rotation from the slow, mature, “old world” to the tech new order
S&P 500
S&P 500 PE Ratio: Ratio divides the price of the S&P 500 index by the average inflation-adjusted earnings of the previous 10 years
Nasdaq 100 vs. S&P 500 since March 2020

The Macro Outlook

  • Unemployement continues to decrease and there’s a huge spike in building permits which signals a signifcant recovery since March 2020
  • Historically, there were only 3 main events which drove a significant spike in unemployement: dot com bubble 00s, housing bubble 09s, and covid in 20s.
  • If history were to repeat itself, will be another bull market for another decade
  • Price of S&P500 is outpacing the growth in GDP, but not by much. Will need to continue to watch this divergence that may signal a short correction
US New Private Housing Units Authorizied by Building Permits vs. S&P500
US Unemployement Rate vs S&P500
US GDP vs. S&P500

The Corporate Outlook

  • S&P500 is outpatching both the growth in corporate profits and personal consumption expenditures. Similiar to S&P500 vs GDP, as this divergence continues, look for a correction
  • Capacity utilization is increasing and is signalling a strong recovery. Will continue to watch until it hits the previous peaks of 78
Corporate PRofits after Tax vs S&P500
Capacity Utilization of Total Industry vs. S&P500
Inventories to Sales Ratio to S&P500
Personal Consumption Expenditures to S&P500