Transcript:
Tom Vaughan:
Well, hello, everybody, welcome to Friday, the S&P 500 was down .08% today. We had another week where actually the indexes were down for the second week in a row. We’re about 5% or so off of the high that was established earlier. And so there’s, obviously some concern about what’s happening with the market, is this something that’s going to be a problem? I will say that one nice thing about today, at least, and Monday, in both cases, the market was kind of soft. In the value side, a lot of the pieces that we have in the portfolio did quite well today, too. So, it depends, the overall indexes don’t represent everything, as far as that goes. But there are some things I think they’re important. I covered some pieces today on Go Live with Tom, a question that came up about whether we were going to have a stock market crash at some point in this year. And I want to share something here that I think’s really important in case you didn’t get to see this, this afternoon in the Go Live with Tom session.
And this is athis is the leading economic indicator, there’s a group called the Conference Board. And they put together this big basket of indicators, there’s 10 of them in here, they consider these leading indicators. This is the blue line is the leading indicator, going back to the 1960s. And then these gray little spots here are recession. So this is a great indicator for predicting a potential recession. So you can see, as soon as it turns over, all of a sudden, we end up with a recession. And so it’s it’s turning over before the recession happens. And so often use this combined with the stock market itself, to kind of tell where things might be. In other words, I’ve not seen a big downturn that comes without some downturn in this leading economic indicator. And going back to the 1960s. Or the only time we’ve seen a recession that happened that didn’t proceed, were a downturn and see what’s the pandemic. And so you can see that here. And again, that’s because it wasn’t an economic issue. It was a health issue that turned into an economic issue. But here’s my key point. Look at this recovery here. If you look back, right, here’s 2008 downturn took a long time for the indicator to come back. 2000 took a long time to come back here back in the early 90s, took a long time to come back. Look how fast this came back. And again, because this wasn’t an economic issue, per se, it was a shutdown. And then it was funded by a lot of money from different governments around the world. We’re seeing this reopening happening here. And that’s what’s causing problems, you’ve got a not used to that, here’s this kind of slower recovery, gets companies time to kind of get their supply back up or not having that right now we have people out trying to spend money. And we have companies that can’t keep up with that spending. But more importantly, even though the markets down 5%.
You know, so far from this pie, I think the thing to keep in mind here and the really important thing to remember is that we haven’t seen historically going back here to 1960, a big downturn in the stock market that wasn’t preceded by some type of a downturn here in this leading economic indicator, except for the pandemic. And I do not believe that even if there is another variant out there that we’re going to close down in the same way, I don’t think the world is ready to do that. I think we learned a lot from what we did before with masking, social distancing, and partial closings and such doing things outside and what have you, I still think the economy can kind of roll along a little bit better than it did you know, at the beginning of the pandemic last year.
So again, unless you see this start to come down, along with the market coming down, you’re probably at least historically, not looking at a really big downturn. Matter of fact, when the market comes down, 5% and leading indicators are going up like this, you’re probably actually looking at a buying opportunity. And so for example, this is a 17% increase year over year that we’ve just had, which is a really big number for this index, and a 1.6% increase over the last month. And anytime that we saw a big upturn, we’ve seen big up turns in the stock market also. So again, things can happen. Not everything works out to be the same all the time. But that’s very important information to take a look at is what’s happening that was just reported here this week. So I think if you look at what’s happening with the economy, the real issue is it’s opening a little bit quickly, that’s creating some fear about inflation. Again, I think a lot of that could be somewhat temporary, we’ll have to see what happens with labor.
But if you look at what’s going on with the economy and the leading indicators, and so you know what’s in there as housing starts and new orders for manufacturing and initial unemployment claims and etc. This battle basket of indicators has been fairly effective, in my opinion at telling where the economy might be going. That’s LEI. So keep keep that in mind when you’re thinking about things. So those are things I look at when I look at the S&P 500. And I see it coming down 5%, I go look at the LEI. And I see it’s up 17% in the last 12 months, I’m not that worried about a big downturn. Can we have another 5% down? Sure, all the time, that happens all the time, even when the economy’s doing great. And so but can we have a 25% downturn from the high? That’s much less common, and really, really hasn’t happened when that LEI has been going up outside of the pandemic that happened last year, which again, I don’t think is a risk.
For this year, the vaccines are coming out the variants so far seem to be more or less controlled by the vaccine. So even if something new comes along that the vaccine can’t handle, I don’t think the economy is going to react the same way. I think probably we can maybe come up with a vaccine quickly to fix that, if it does happen. So far, that hasn’t been an issue. So, again, don’t worry too much about what’s happening. Here. We are, I think on the right side of the equation. This week, growth did better than value. So that’s okay, we have a few growth pieces. We have a few overall market pieces in our portfolios. They did better today over the week, but monday and friday valued better.
So you know, we’ve got the mixture in there. And I think overall, just looking at the market, I think we’re gonna see some continued gains coming in here, as things start to play out. So we’ll see how this goes. So thank you. For those who attended, Go Live with Tom, again, subscribe to the channel. If you want to get some of the pieces that we post from that including my full on piece that I just did, based on, what is the market going to crash this year and I included some of the leading indicator information in there also. So, look forward to talking to you next week. Thank you very much.