Stocks pulled back last week, as the S&P 500 fell by 1.48 percent to 3,768.25. That still left the benchmark index up 0.32 percent 2021-to-date, and just 1.48 percent below the all-time closing high. As equities were under pressure bullish sentiment also appears to have moderated somewhat. For example, the latest AAII survey showed that 45.2 percent of investors expect stock prices to generally rise in value over the next six months, while 31.7 percent anticipate a decline in equity valuations. Although bulls outnumber bears both of those figures are well off of the extremes seen in Q4 2020 and overall comfortably within historical norms. Further, data from Yale's International Center for Finance suggests that both individual and institutional investors’ concerns about a market crash occurring within the next six months remain historically elevated (levels last seen around the start of the previous decade-long bull market). The above sentiment readings could arguably be interpreted as an encouraging sign that investors have yet to become excessively complacent, at least based on historical comparisons, although none of this necessarily implies that equities cannot enter another period of heightened volatility.
Fortunately many experienced 401(k) investors can look past any near-term swings in stock prices and instead stay focused on the long-term objective of preparing for retirement through years of routine, tax-advantaged plan contributions. This clearly paid off in 2020 based on the latest EBRI report on average defined contribution plan balances. Specifically, in March of last year when pandemic-related stock market tumult was at its peak the average 401(k) balance for younger (25-34), less-tenured (1-4 years) workers was down 9.9 percent, and older (age 55-64) workers with more than 20 years of tenure saw their average balance decline by a similar 10.5 percent during those first three months of the year. Fast forward to December and the average 401(k) balance ended 2020 up 29.2 percent for the younger cohort, and up 16.5 percent for older participants. The sharp rebound was of course only available to those who stayed invested throughout 2020, and it can understandably be difficult to remain so resolute while markets experience volatility similar to what occurred last March. This is especially true if your equities exposure is inappropriate for your nearness to retirement, risk tolerance, and other unique variables, and is why we regularly highlight the importance of periodically reviewing your positioning. Additional assistance is available by consulting with a professional financial advisor and as always, we are here to help with any questions you may have.
To recap a few of the things we learned about the economy last week, the positives included that industrial production picked up, capacity utilization rose, the number of job vacancies per out-of-work American improved, and wholesale, household, and trade-related inflationary pressures all remained muted. As for the negatives, manufacturing activity in the northeast region of the country weakened, small business owner confidence softened, consumer sentiment deteriorated, retail sales disappointed forecasts, a gauge of labor market optimism cooled, and an alarmingly high number of Americans continued to make first-time claims for unemployment benefits. This (holiday-shortened) week the pace of economic data slows down but there are still a few important reports on housing, manufacturing, and employment scheduled to be released.
What To Watch:
- U.S. Holiday: Martin Luther King Jr. Day
- Markets Closed
- Treasury International Capital 4:00 PM ET
- MBA Mortgage Applications 7:00 AM ET
- Housing Market Index 10:00 AM ET
- 20-Yr Bond Auction 1:00 PM ET
- Housing Starts and Permits 8:30 AM ET
- Jobless Claims 8:30 AM ET
- Philadelphia Fed Manufacturing Index 8:30 AM ET
- 2-Yr Note Announcement 11:00 AM ET
- 5-Yr Note Announcement 11:00 AM ET
- 7-Yr Note Announcement 11:00 AM ET
- 10-Yr TIPS Auction 1:00 PM ET
- PMI Composite Flash 9:45 AM ET
- Existing Home Sales 10:00 AM ET
- EIA Natural Gas Report 10:30 AM ET
- EIA Petroleum Status Report 11:00 AM ET
- Baker Hughes Rig Count 1:00 PM ET
Sources: Econoday, AAII, Yale ICF, EBRI, FRBSL
Post author: Charles Couch