by Gary Alexander

April 27, 2021

President Biden’s first 100 days brought more radical change than at any time since FDR’s 100 days of new alphabet soup agencies in 1933. Just last week, there was talk of DC Statehood, packing the Supreme Court, another $2 trillion spending package, a Green New Deal, and a doubling of capital gains tax rates.

But let’s give Mr. Biden high marks for bringing the vaccine distribution rate to “warp speed” by more than doubling his goal of 100 million doses delivered, with 225,640,460 doses delivered as of April 24.

He also asked us to wear face masks for his first 100 days, so now that we have doubled the promised vaccine dosages, can we remove our masks this weekend, if we’re vaccinated and not sick…please?

Now, to the reality of what comes next –a booming economy, rising stocks, and rising wage inflation.

Retail Sales Up HUGELY, but Most Stimulus Money Was Not Spent

As I have been saying for several weeks, the government has been grossly over-spending on stimulus money, sent out to about 250 million Americans instead of the perhaps 50 million who need it. Most of that money (about 75%) is being saved or used to pay down debt, according to a study by The Federal Reserve Bank of New York. This applies to the January $600 stimulus as well as the March $1,400 check.

This means that there is still plenty of spending power to fuel a stock market surge, as well as more retail sales, in addition to the record $7.4 trillion (annual rate) we spent during March. That’s up 28% (year-over-year) vs. the $5.8 trillion rate last March – a month split down the middle, pre- and post-lockdown.

Economist Ed Yardeni has researched the percent changes in the major categories of retail sales growth over the past 12 months through March 31, 2021. Here are some of the leaders:

Retail Sales Growth, By Category
12 Months Ending March 31, 2021)

 Clothing & accessories  +101.1%
 Sporting goods & hobby  +73.5%
 Motor vehicles & parts  +71.1%
 Furniture & home furnishings  +46.8%
 Food services & drinking places  +36.0%
 Gasoline stations  +34.8%
 Miscellaneous store retailers  +31.2%
 Source: Yardeni Research, April 19, 2021

Just looking at my home situation, my wife and I have certainly done our part to boost retail sales this spring, almost entirely via the Internet. My wife and I each bought a new home computer, since the old ones are a decade old and sputtering along. I almost bought a new (gently used) car, but my 15-year-old PT Cruiser is low mileage, so I opted for repairs instead. I also spent a bundle on reservations for air fare, hotel, rental car, and fees for July’s Freedom Fest in South Dakota as my “coming-out-of-Covid” party.

After 13 months at home, everyone is getting cabin fever, including us, so I bought a stationary bike for exercise under the Douglas firs near our porch, and I upgraded a Kindle to read books while I pedal. We also tended to home repairs and improvements. All these purchases will boost retail sales data for April.

After the March retail sales report was released, the Atlanta Federal Reserve Bank raised their GDPNow model for Q1 GDP to 8.3% from 6.1% and its estimate of real personal consumption expenditures (PCE) growth to 9.5% from 7.2%, which means the consumer is on fire AND has plenty of fuel left to burn.

GDP Now Forecast Index Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

There is still plenty of liquidity. The broad M2 measure of money is up by an unprecedented $4.2 trillion (year over year) through February, as I showed recently (chart, below). Personal savings totaled a record $3.1 trillion in the last three months – and that’s before accounting for the latest $1,400 relief checks per eligible person. About 250 million of 330 million Americans, or 75% of us, received a stimulus check.

M2 Money Supply Index Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Americans have $16.3 trillion socked away in the bank (chart, below). With so much money on tap, we don’t need to worry too much about a stock market crash, as any normal correction will be met by buying support. After all, where else will our investment dollars go? Bonds aren’t exactly a screaming bargain nor an invitation to riches. Real estate is hard to find in many areas. Gold is good in small doses as a portfolio balancer, but stocks are the main component of most portfolios and likely always will be.

Bank Deposits Index Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

So, the bottom line is: Do NOT “sell in May and Go Away” – after Joe Biden’s 100th day in office. The Democrat’s policies may be able to wound the stock market, but they probably can’t kill this bull market. Mr. Biden likely won’t get his desired doubling to 39.6% on capital gains – or his other “soak the rich” tax plans, thanks to some sensible Democrats in Congress – those who want to get re-elected in 2022.

Annual Price Return for the Standard and Poor's 500 Percentage Bar Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

A moderate tax increase may not impact the S&P 500 very much at all. A Fidelity study published April 13 (above) charted the years in which tax rates were increased and the S&P performance that followed.

The Next Wave of Inflation Will Likely Come from Wage Increases

Rising labor costs will likely push the overall consumer price index up in coming months. Since labor accounts for a much bigger percentage of the cost of producing goods and services than raw materials, this will raise inflation expectations among business owners. That’s one reason why 26% of small business owners raised their average selling prices in March, the highest since August 2008.

Coming out of the deep 2008-09 recession, the October 2009 Fed beige book described wage pressure as “subdued.” By contrast, this month’s beige book reported shortages of truck drivers; entry-level, low-wage and skilled workers; child-care and information-technology staff; specialty trades; and nurses” (see “Labor Market Tighter Than It Looks,” Wall Street Journal, April 22, 2021, by Greg Ip). “A homebuilder related that a landscaper had hired 20 laborers in early February, and none showed up for work,” the latest beige book said. “One restaurant had begun offering $1,000 if workers stayed for at least 90 days.”

One Florida fast-food franchisee is paying applicants $50 just to show up for a job interview for an entry-level job offering $12 an hour ($3 above minimum wage), and is considering upping that wage to $13.

Some 7.4 million jobs were going begging at the end of February, according to a BLS report released on April 6. The latest National Federation of Independent Business (NFIB) survey found that most business owners reported few or no qualified applicants for the positions they were trying to fill. Among owners who were actually hiring during the time of the survey, 91% could not find ANY workers!

One problem is that the government still pays people more to stay home than they earned when they were working. According to the weekend Wall Street Journal (“Covid Relief Makes Help Impossible to Find” April 24-25, 2021), the jobless in Indiana initially collected $990 per week, now $690, the equivalent of $17.25 an hour, so workers can afford to slack off or make audacious demands and then quit in order to go back on the dole. The cure is simple: With so many jobs going begging, remove the reward for sloth.

All content above represents the opinion of Gary Alexander of Navellier & Associates, Inc.

Please see important disclosures below.

Also In This Issue

Global Mail by Ivan Martchev
The Fed’s Bull Market Strategy

Sector Spotlight by Jason Bodner
Talk Isn’t Cheap – It’s Costly to Listen to Negative News

View Full Archive
Read Past Issues Here

About The Author

Gary Alexander
SENIOR EDITOR

Gary Alexander has been Senior Writer at Navellier since 2009.  He edits Navellier’s weekly Marketmail and writes a weekly Growth Mail column, in which he uses market history to support the case for growth stocks.  For the previous 20 years before joining Navellier, he was Senior Executive Editor at InvestorPlace Media (formerly Phillips Publishing), where he worked with several leading investment analysts, including Louis Navellier (since 1997), helping launch Louis Navellier’s Blue Chip Growth and Global Growth newsletters.

Prior to that, Gary edited Wealth Magazine and Gold Newsletter and wrote various investment research reports for Jefferson Financial in New Orleans in the 1980s.  He began his financial newsletter career with KCI Communications in 1980, where he served as consulting editor for Personal Finance newsletter while serving as general manager of KCI’s Alexandria House book division.  Before that, he covered the economics beat for news magazines. All content of “Growth Mail” represents the opinion of Gary Alexander

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