Redrick Terry:
It is now time for Four Your Money. We are joined by David Nelson, CEO of NelsonCorp Wealth Management.
Redrick Terry:
Hi David, welcome back.
David Nelson:
Thank you Redrick. Happy New Year to you.
Redrick Terry:
Same to you as well.
Redrick Terry:
So even with all the turmoil we saw in 2020, the stock market ended the year on a high note, most broad indexes had gains in the double digits. So now that 2021 is finally here, a lot of investors have to be asking themselves, can this rally keep going? What are your thoughts on that?
David Nelson:
We certainly hope so. It’s hard to say. Anything’s possible as we saw in 2020. We started the year up slightly. We had a 35% plus drop and then we finished the year up 17%. I brought along a chart I think that will give people a nice feel as far as for what’s actually taken place. And we’ve got blue bars here that are going up and down. That’s an individual year, as far as going back to the ’30s, looking at stock returns, stock market returns. And then we put in a red line to try to simplify, that’s to basically show anything above that is a 10% plus return. So double digit returns.
David Nelson:
So 2018 was up 30%, 2020 was up 17. It’s a very rare event that we’re going to see a triple digit return three years in a row. Very rare. The last one was 2014, ’15 and ’16. Prior to that, it was in the 1990s, prior to that, it was in the ’50s. So these are very rare events. And again, as people can see from the chart here, it’s basically showing there’s some really nice up years and there’s some down years that we have to deal with occasionally as well.
Redrick Terry:
Certainly.
Redrick Terry:
So what are some of the threats that you see that could derail things here in 2021?
David Nelson:
Well, the risks to the market aren’t new as far as to 2021. Most of the risks that are out there today have been in existence. Probably the main one is the pandemic, but the market has kind of kicked it to the side of the road and acted like it’s really not there, thinking that it’s a short-term event and that things will improve down the road. The vaccine has been really good news as far as the expectations, as far as what that’s going to mean, as far as getting the economy rolling again. But unemployment is still very high. And also in 2020, corporations raised enormous amount of cash through bond offerings. But the bad part of that is that they’ve cut back on their buybacks, and buybacks, as far as stock buybacks, are in simple terminology they have gains at the end of the year. And instead of paying out in the form of a dividend, they’re going to buy the stock back, shrinking the number of shares and hopefully driving prices up. And that’s the bad news to what took place in 2020.
Redrick Terry:
So how about some of the catalysts, if you will, that could continue drive the market higher?
David Nelson:
Well, I think the most positive catalyst is just the continuation of the current trends as far as that we’ve seen. The tailwinds, as far as from foreign investors buying US stocks has been enormous, record levels. We’ve never seen this type of buying taking place as far as from foreign investors. The bad news with that is that their timing historically hasn’t been very good. So and then finally, interest rates. Interest rates, the Fed has committed to keeping them low. And if interest rates stay low, generally this is going to be good news long-term. We’re probably going to have some bumps in the road after a couple of big years, but the bottom line with interest rates low and foreign investments, that’s really good news looking forward.
Redrick Terry:
David Nelson, as always we thank you for joining us.
David Nelson:
Thank you Redrick.
Redrick Terry:
Of course. And if you have any more of our discussion that you’ve missed, we’ll make it available to you on OurQuadCities.com.