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Numbers and NUMBERS

Thursday, June 10, 2021

Numbers and NUMBERS


Every day in the financial media, we are inundated with numbers and statistics; “The market was up 1.2% today”, “The S&P hit an all-time high”, “The market had it worst 11 day period ever”, “The market had its best 3 day run in the last 40 years”…. The last two quotes, were very similar to quotes we saw last year during the height of the pandemic and happened within a few days of each other. While factual, they leave something to be desired in the helpfulness department. Therefore focusing on the numbers that are most important is what I hope to leave you with.


We have experienced an incredible rebound in the market since the height of the pandemic in the spring of 2020. Investors have been pleased and surprised with the positive returns. The return for the S&P 500 for 2020 was 18.40% and the Barclays Agg. Index (bond market) was 7.51%. For the quarter ending March 31 2021, the returns were 6.18% and 3.37%, respectfully. The bond market experienced negative returns as a result of rising longer term rates. Looking at the performance of the bond market for the quarter while factual, doesn’t tell the whole story. The returns for a 60/40 portfolio (stocks/bonds) for the quarter would have been 2.36%. The lesson here is to focus on the total return of the portfolio and less on individual securities or asset classes. In addition, having an allocation to bonds is critical in providing the safety net to help offset the volatility of the equity markets. Bonds generally helped offset the very dramatic drop in the equity markets in 2020. In this case there is more to a number than just the number.


Of greatest importance are the NUMBERS that have the most impact on you as an investor. The overall economy impacts the financial markets and we know the financial markets are forward looking and anticipatory. Therefore, focusing on data that is forward looking is beneficial. We have used rail data and weekly unemployment claims to get an idea of both the direction and the strength of the economy. Without getting into the weeds, rail data continues to recover and weekly unemployment claims, while still extremely high by historical standards, are trending down. Both indicate a growing economy. The Federal Reserve publishes a forecast of GDP for the coming years and the current median forecast for 2021 is 6.5%. Looking at GDP for the last quarter or year is akin to looking in the rearview mirror. The 6.5% forecasted number is very strong and bodes well for corporate earnings in 2021. Corporate earnings ultimately drive stock returns. Earnings expectations for the full year 2021 have been rising over the last several quarters, with the market expecting earnings growth of 27.1% for the S&P 500, up from the year-end projection of 22.3%.

Moving away from economic numbers and market performance, an individual’s numbers are even more critical in reaching their goals. For example, time horizon, amount saved during the accumulation period, and the withdrawal rate are extremely important in putting together a comprehensive plan that will allow investors to achieve their goals. These are the most important numbers and ones in which you have control over.

Sitting down with your First Merchants Private Wealth Team and having a conversation allows you to focus on the numbers that are meaningful and help put aside the day to day numbers (noise) we are all inundated with.

Dave Rever