This month, I will refer investors to the Schwab 2021 US Market Outlook by Charlos Gary as I believe it offers a good summary of the economy and financial markets.  Some key takeaways:

• Gross domestic product (GDP) has not fully recovered from its contraction since the first calendar quarter.
• Consensus economic forecasts for GDP growth in 2021 are in the 3.1-3.4% range.
• Permanent job losses have increased steadily during 2020.
• Unemployment has declined from a peak of 14% in the spring to under 7% now.
• The most frequent questions on Schwab webcasts are related to the federal budget deficit, debt, and inflation.
• The Big 5 stocks (Alphabet, Amazon, Apple, Facebook, and Microsoft) account for 25% of the capitalization of the S&P 500 and their year-to-date performance exceeds the other 495 stocks of the S&P 500 by over 40%.
• The forward price/earnings ratio (based on a forecast for the next 12 months) of the S&P 500 is currently at 26, matching the peak level of the “tech bubble” of 2000.  However, the P/E of the Big 5 stocks now is nearly half the level of the Big 5 stocks of 2000.
• Sentiment indicators indicate extreme optimism, which is bearish for the market.  Net foreign purchases of US stocks are at record levels.
• Their concluding line: “Investors should remain disciplined, diversified and opportunistic with regard to rebalancing.”  I agree.

If you would like to read the full article, click on the following link:  2021 U.S. Market Outlook: Better Days? | Schwab Funds

The Recent Merger

As most of you know by now, Charles Schwab recently completed their acquisition of TD Ameritrade, which I have used as custodian (including the predecessor organizations) for client accounts for more than twenty years.  For now, TD Ameritrade operations will continue as though it is a separate entity, but eventually their operations will be merged.  Charles Schwab has an excellent reputation and I expect a good working relationship with them in the future.

If you have any questions, please contact me.

Sincerely,
Robert G. Kahl
CFA, CPA, MBA