Do Pregnancy Rates Predict Stock Market Returns?
/Before I dive into this week's blog post, I want to let you all know that we are actively looking to hire an Executive Administrative Assistant. The full job posting is available on our site here. If you know someone who might be interested, let me know. They can reach out to me directly with their resume as well. Now on to this week's market thoughts...
Do pregnancy rates predict future economic recessions?
According to the National Bureau of Economic Research (NBER) they sure might. Their study tracked 109 million births that occurred from 1989-2016 and found that the number of conceptions declined ahead of eventual declines in economic growth (GDP) back in the late-80s, then again ahead of the tech bubble in the late-90s and then once more ahead of the subprime mortgage crisis in 2007.
This chart shows the positive correlation between conceptions (solid line) and economic production (dashed line):
(per the National Bureau of Economic Research, via CNBC)
I can get on board with this. When we are financially optimistic we tend to spend more. When we are pessimistic or uncertain we tend to spend less. Kids are expensive, so it is reasonable to assume that couples might think twice about having one or more kids if they are concerned about things like job security, stock market conditions or the U.S. economy in general. There are very few areas that are truly recession-proof and two of them happen to be child care and college tuition. If birth rates decline it is very possible that it is because families consider those costs, at least to some extent.
This hopefully goes without saying but this report should not influence investment decisions, at least not in a vacuum. It is a human interest story more than anything. But it is a pretty plain way of thinking about how we feel about the market and economy.
Corporate earnings boom: It was a solid quarter for large publicly traded companies. Revenue growth was terrific and the overwhelming majority of companies surpassed earnings expectations. Here are a few of the highlights (per FactSet):
- Earnings grew nearly +15% in Q4, which was the most for any quarter since 2011.
- All 11 stock sectors experienced profit growth. So unlike prior quarters, positive earnings results were not limited to a handful of sectors.
- Sales increased +8.2%, which was also a high dating back to 2011.
- Compared to estimates, 77% of all S&P 500 companies beat their sales targets. This is the highest percentage since FactSet started tracking data in 2008.
Because we emphasize sales over profits, here is a sector-by-sector look at revenue growth in Q4:
(source: FactSet)
Housing prices inch higher: Home values appreciated by an average +0.2% in December nationwide (per the S&P/Case-Shiller report). Seattle real estate beat that average, rising +0.6% during the month, and continue to lead all major cities on an annual basis as Seattle homes have risen +12.7% in value over the past year. Las Vegas continued to narrow that gap, up +11.1% annually, followed by San Francisco (up +9.2%).
Here is a complete city-by-city look at housing price changes:
In The Market...
The S&P 500 rose +3.6% last week. Let's look under the hood:
(price data via stockcharts.com)
Last week's surge came on the heels of the S&P falling -2% the week prior, so some context is needed. Nonetheless, following a week where all 10 stock sectors were negative it was good to see all 10 sectors rally back. As a whole the S&P 500 index still remains 3% below its previous peak set back on Jan. 26th. In my view that peak needs to be surpassed soon in order to sustain this rally in the weeks ahead. Or I sense market conditions will remain choppy.
If this rally is to sustain across all/most sectors of the market, I still think Technology will lead the way. Tech continues to look the healthiest among all areas of the market, on all timeframes we analyze. This past week it was Tech and the other growth-oriented sectors that performed the best, namely Financials and Industrials.
We continue to own Financials as well as a tech-heavy index fund (SPYG) across most accounts. I have been looking to add the Tech sector fund (XLK) for a couple weeks but am still weighing whether to cut bait on our Utilities position or wait for a potential rebound in the Utilities sector. This is getting in the weeds a bit, but I am happy to share more if you're interested in my thought process.
Since I didn't send out a blog last week I didn't get to mention that the U.S. market snapped its 15-month winning streak, as the S&P 500 fell -3.9% in February. So far March is starting out much better than did February.
In Our Portfolios...
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I will be sending you our updated Form ADV 2A, which is disclosure information pertaining to our firm. This is a form you received when you first became a client and is something we update at least annually. If you have any questions about its contents, please ask. However, no action is required of you. It is purely for your information.
I am hoping the sunshine lasts through the weekend so that I can mow our yard for the first time this year. I will also finish getting settled in to our new office at 2nd Avenue and Columbia St. If you happen to be in downtown Seattle please stop by and say hi!
Have a great weekend,
Brian E Betz, CFP®
Principal