Challenging Job Market Ahead, Fed Deficit Widens, Oil Rises, Gas May Follow
In today’s Steady Investor, we take a look at key factors that we believe are currently impacting the market, such as:
- The challenging road ahead for the jobs market
- Widening of federal budget deficit
- Brexit fallout in the capital markets
- Oil prices go up, gas prices may soon follow
The Challenging Road Ahead for the Jobs Market – After eight months of consecutive job gains following the March lockdowns, the U.S. economy actually shed jobs in December. The data is discouraging, but there could be a positive takeaway – December job losses did not stem from U.S. employers stepping up their firing, but rather from slowing their pace of new hiring. Employers’ reluctance to hire may have been driven by anticipation of a slow winter, particularly given the November/December wave of hospitalizations and deaths. During the winter, options like outdoor dining also fade, and economic activity softens as people stay home more and go out less. But there’s still good news here: it is easier to reverse a trend of slow hiring than accelerating firing. Even still, the labor market is battered from the pandemic, and Federal Reserve Chairman Jerome Powell said last week that published unemployment rates may be understating deterioration in jobs.1
We all know the pattern – as inflation occurs, uncertainties rise. This can be a challenge for almost every investor, especially those who are trying to build their retirement portfolio. Through your uncertainty, just know that it’s possible to still achieve your financial goals through these unpredictable times. However, achieving these goals involves some work: defining your investing objectives, determining your asset allocation, managing investments over time.
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Federal Budget Deficit Continues to Widen – The federal budget deficit has been widening for over four years, but spending went into overdrive last year as revenues (tax receipts) fell. During the first four months of fiscal 2021, which actually began in October 2020, the U.S. budget gap hit $736 billion, which marks an 89% increase from the same period last year. Zooming out to the entire fiscal year 2020, the deficit hit $3.47 trillion, which is an astounding 16.2% of U.S. GDP.3 These figures are front-and-center to the debate over more fiscal stimulus, with the Biden administrations $1.9 trillion package currently in the works. The United States has not posted deficits this large since the end of World War II, another time of great crisis for the nation.
Brexit Fallout in the Capital Markets – When the Brexit vote took place in 2016 – hard to believe it was that long ago – many skeptics worried that London would no longer command its place as Europe’s financial center. Predictions abound that trading and capital market hubs would move to Frankfurt, Amsterdam, and perhaps Paris. One of those predictions has just come to fruition. Last month, Amsterdam passed London as Europe’s dominant center for trading shares, averaging 9.2 billion euros of shares traded a day on Euronext Amsterdam and the Dutch arms of CBOE Europe and Turquoise. By comparison, shares traded in London in January averaged 8.6 billion euros per day, a number that has been progressively shrinking as Amsterdam’s tick higher. The shift was driven largely by EU rules banning financial institutions from trading in London, as the terms of Brexit remained undetermined.4
Oil Rallies, Gas Prices May Soon Follow – Oil prices have been marching higher over the last few months, and have reached levels not hit since before the pandemic crushed global demand. A couple of forces are at work in the oil markets, in our view. First, curbs on OPEC production coupled with inventory drawdowns have helped reduce the supply glut. Second, demand is returning to the markets as countries anticipate an end to the pandemic, with many forecasting a surge in economic activity in the second half of the year. Gas prices tend to track with oil prices, and we are already seeing signs of upward pressure on prices at the pump. Average gas prices nationally climbed to $2.46 in January from $2.12 in June, and we might expect even more upward pressure as the global economic recovery takes hold.
Not knowing what the future holds shouldn’t stop you from reaching your financial goals. There are steps you can take to protect your investments and create a retirement portfolio that meets your goals. To help you do this, I recommend reading our guide, 7 Secrets to Building the Ultimate DIY Retirement Portfolio.6 It provides a step-by-step blueprint of our customized investing process to potentially help you build a sound retirement portfolio of your own and pursue long-term investing success.
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2 Wall Street Journal. February 10, 2021. https://www.wsj.com/articles/u-s-budget-deficit-widened-last-month-as-latest-stimulus-package-took-effect-11612983667
3 Zacks Investment Management reserves the right to amend the terms or rescind the free Market Strategy Report offer at any time and for any reason at its discretion.
4 Financial Times. February 10, 2021. https://www.ft.com/content/3dad4ef3-59e8-437e-8f63-f629a5b7d0aa
5 Wall Street Journal. February 7, 2021. https://www.wsj.com/articles/tightening-oil-supplies-inject-new-momentum-into-price-rally-11612693802
6 Zacks Investment Management reserves the right to amend the terms or rescind the free Market Strategy Report offer at any time and for any reason at its discretion.
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