The Numbers & “Heat Map”

THE NUMBERS
Sources: Index Returns: Morningstar Workstation. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. Three, five and ten year returns are annualized. Interest Rates: Federal Reserve, Mortgage Bankers Association.

MARKET HEAT MAP
The health of the economy is a key driver of long-term returns in the stock market. Below, we assess the key economic conditions that we believe are of particular importance to investors.

US ECONOMY

CONSUMER HEALTH

NEUTRAL

U.S. GDP increased at a 4% annualized rate in Q4. For the full-year 2020, the U.S. economy contracted by 3.5%, its worst performance since 1946. GDP is expected to improve meaningfully in 2021 as the American population gets vaccinated.

CORPORATE EARNINGS

NEUTRAL

With ~60% of S&P 500 constituents having reported Q4 earnings, profit growth is coming in at 1.6% year-over-year, well in excess of analyst expectations, which figured that earnings would fall by 7%.

EMPLOYMENT

NEGATIVE

The unemployment rate declined to 6.3% in January from 6.7% in December. Labor weakness remains in sectors such as Leisure and Travel; such sectors stand to benefit as vaccine distribution accelerates.

INFLATION

POSITIVE

The Fed plans to allow inflation to temporarily overshoot its 2% target such that the long-term average is 2%. Inflation has been tame since the Great Financial Crisis, less than 2%.

FISCAL POLICY

POSITIVE

Discussions on President Biden’s a $1.9 trillion stimulus package are ongoing. If the bill passes through Congress, the U.S. economy will have received a total of approximately $4 trillion in stimulus over the trailing twelve months.

MONETARY POLICY

VERY POSITIVE

The Federal Reserve supported asset markets with unprecedented speed and magnitude in response to COVID-19.

GLOBAL CONSIDERATIONS

GEOPOLITICAL RISKS

NEUTRAL

There are few, if any, looming geopolitical risks that could upset the economic recovery.

ECONOMIC RISKS

NEUTRAL

Although economic activity mostly remains below 2019’s levels, improvement has occurred across nearly every measure since the April 2020 nadir. With multiple vaccines in distribution, a second fiscal package in place, and interest rates low, 2021 is positioning to be a strong economic year.

The “Heat Map” is a subjective analysis based upon metrics that VNFA’s investment committee believes are important to financial markets and the economy. The “Heat Map” is designed for informational purposes only and is not intended for use as a basis for investment decisions.

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