Phone System Error (Updated)

December 17, 2020

The phone connectivity problem has been resolved as of this morning, we are fully operational and thank you again for you patience!

December 16, 2020

Our office is currently experiencing technical difficulties with the phone connection. We are doing everything we can at this time to get it up and running smoothly again. We apologize for any inconvenience this may cause, and thank you for your patience while we handle the situation. Please feel free to email Haley.Hull@RaymondJames.com with any questions or urgent requests and we will do our best to respond in a timely manner. To contact Raymond James branch services directly call 800.248.8863. We are hoping this will be resolved by tomorrow morning and will keep you updated.

Thank you.

Stimulus, Bailouts, and the Fed

December 14, 2020

First Trust Monday Morning Outlook

Brian S. Wesbury - Chief Economist

Back room deals in Washington, DC always die and come back to life, over and over, again. And, even though a “COVID shutdown rescue package” seems like a no brainer, it’s been caught up in politics for months.

Democrats have been holding out for a huge, potentially $3 trillion dollar bill, while Republicans are looking at debt in the years ahead and suggesting that too much spending would create economic problems down the road. Nonetheless, a deal somewhere between $900 billion and $1 trillion appears likely to pass before year-end.

The details are still up in the air, but we’re confident anything that gets passed will include (among various other provisions) enlarged and extended unemployment benefits, more help for small businesses, some sort of liability shield to protect businesses from being held liable for COVID-19 infections, as well as some aid for state and local governments.

Although many in the GOP don’t like the idea of the federal government bailing out the states, we think some temporary extra federal funding could be justified under these extraordinary circumstances given that the light is at the end of the tunnel; a pandemic-related recession is not a normal recession. Small businesses didn’t expect to be fighting a pandemic this year and neither did state and local governments.

However, states are all different. Some came into 2020 with surpluses (rainy day funds), while others, like Illinois, were in financial trouble. It’s important that the federal government makes sure any funds going to states are designed to offset fiscal damage caused by COVID and the reaction to it, not to fix fiscal problems the states had prior to COVID.

One solution would be to distribute federal money to states based on their respective population sizes. This would compensate for lost revenue from shutdowns and avoid bailing out underfunded pension funds. Our best guess is that the current state bailout number being thrown around – about $160 billion – would comfortably compensate states for lost revenue from COVID shutdowns.

We also can’t help but notice that some big companies are pulling up stakes and moving their tents from California to Texas, while others are either moving from New York City to Florida or seriously considering it. These are big, headline grabbing moves, but probably just the tip of the iceberg. What we hope is that this is the last big spending bill of the COVID crisis. In 2021, the vaccine itself is the best stimulus we could ask for. As frontline workers get vaccinated, and vaccines for those who are most at risk are just weeks or months away, states should open up their economies relatively quickly.

Meanwhile, the Federal Reserve meets this week, and will issue a policy statement on Wednesday. Fed Chairman, Jerome Powell will hold the normal post-meeting press conference shortly thereafter. We expect the statement to be roughly the same as the last one in early November, which itself was very close to the prior statement in September. The Fed remains in stimulus mode.

We’ll be closely watching for changes to the Fed’s economic projections or the “dot plots,” which show where the Fed thinks it will be setting short-term interest rates for the next few years. In particular, when does the Fed think we’ll get back to a roughly 4.0% unemployment rate, or below? Does the Fed still think we won’t see 2.0% inflation until 2023? Do only four policymakers, like back in September, see the first rate hike happening before the end of 2023?

Many public policy questions will be answered this week. But keep in mind that these decisions are not what really drives the economy. Policy matters, but it’s entrepreneurs that ultimately drive economic growth.

Date/Time (CST) U.S. Economic Data Consensus First Trust Actual Previous

12-15 / 7:30 pm Empire State Mfg Index – Dec 6.5 9.1 6.3

7:30 am Import Prices – Nov +0.3% +0.3% -0.1%

7:30 am Export Prices – Nov +0.2% +0.2% +0.2%

8:15 am Industrial Production – Nov +0.3% +0.1% +1.1%

8:15 am Capacity Utilization – Nov 73.0% 72.8% 72.8%

12-16 / 7:30 am Retail Sales – Nov -0.3% -0.3% +0.3%

7:30 am Retail Sales Ex-Auto – Nov +0.1% +0.2% +0.2%

9:00 am Business Inventories – Oct +0.6% +0.7% +0.7%

12-17 / 7:30 am Initial Claims – Dec 12 815K 853K 853K

7:30 am Housing Starts - Nov 1.535 Mil 1.535 Mil 1.530 Mil

7:30 am Philly Fed Survey – Dec 20.0 26.7 26.3

The attached information was developed by First Trust, an independent third party. The opinions are of the listed authors at First Trust Advisors L.P, and are independent from and not necessarily those of RJFS or Raymond James.  All investments are subject to risk. There is no guarantee that these statements, opinions, or forecasts provided in the attached article will prove to be correct. Individual investor's results will vary. Past performance does not guarantee future results. Forward looking data is subject to change at any time and there is no assurance that projections will be realized. Any information provided is for informational purposes only and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

2021: Robust Growth, Higher Inflation

Monday Morning Outlook

Brian S. Wesbury - Chief Economist

December 7, 2020

The COVID-19 Recession is the weirdest we’ve ever had. There is no way anyone could have forecast it. It did not happen because the Fed was too tight. It did not happen because of a trade war. It was self-inflicted, caused by COVID shutdowns.

And, in spite of a V-shaped bounce off the bottom – 33.1% annualized real growth in Q3, and likely 5%+ growth in Q4 – the economy is still smaller than it was a year ago.

Most big companies have not suffered financial damage, and clearly big tech has allowed much of the economy to operate virtually, but damage to small service industry businesses has been dramatic. What this means is that, while the economy will continue to heal, it will take years to fully recover.

The pace of recovery will depend heavily on renewed shutdowns and the speed of a vaccine rollout. We watch high frequency data, including TSA checkpoint flow-through, OpenTable reservations, rail traffic, and gasoline usage. These weekly, or daily measures turned up in May, signaling a second half recovery. Now, they have leveled out, and in some cases slightly weakened. “Green Shoots” are temporarily going dormant due to large state closures.

This may mean some data weakness in the first quarter of 2021. But don’t let that scare you, we do not see a double dip. In fact, we anticipate solid 3.0% real growth for 2021. Three percent growth might not sound great, but it would be the first time growth has reached 3% for any calendar year since 2005.

Nonetheless, any return to complete normalcy (getting the unemployment rate back down to under 4%) will take years. Because of reopening, the first waves of jobs came back fast. From the April peak of 14.7%, unemployment has fallen to 6.7% in November.

And even with our robust forecast of 6.3 million new jobs in 2021, the unemployment rate will still only fall to about 5% by the end of next year. At that rate, total jobs will still be below where they were in February 2020, before shutdowns began.

Part of this recovery has been artificial. Demand has remained robust because the Federal Reserve is monetizing stimulus the government has provided. That stimulus simply borrowed from the future to hold up spending now. This is already leading to imbalances in demand versus supply and, combined with 25% year-over-year growth in the M2, has pushed consumer and producer price indices higher. Too much money chasing too few goods (and services) is a natural recipe for higher inflation.

In terms of interest rates, the Fed is dead set on leaving short-term rates near zero for all of 2021, and we doubt inflation rising modestly above its 2.0% target will change its mind. After all, the Fed has already said it wants to see inflation exceed that target for a prolonged period before it raises rates. Higher inflation might get the Fed to start thinking about ending quantitative easing, but lifting short-term rates is an issue for 2022 and beyond, not 2021.

Long-term interest rates, however, should drift higher as investors get more confident about the economic recovery and see higher inflation. Expect the 10-year yield to finish about 1.40% next year. Yields could move even higher, but the low level of short-term rates, the Fed’s commitment to keep short rates low, and investor skepticism about how long higher inflation will last should keep long-term rates from soaring.

One segment of the economy deserves special attention, and that’s home building. The US was building too few homes for the past decade before COVID-19, and now the demand for residential real estate is even higher. Expect the surge in construction - and prices for single-family homes - to continue, as people seek more living space and life in places that provide adequate police protection.

In the next several weeks, news headlines may be filled with dire stories. But there is light at the end of the COVID-19 tunnel, and 2021 is likely to be a much better year than 2020.

Date/Time (CST) U.S. Economic Data Consensus First Trust Actual Previous

12-7 / 2:00 pm Consumer Credit– Oct $16.1 Bil $16.0 Bil $16.2 Bil

12-8 / 7:30 am Q3 Non-Farm Productivity +4.9% +5.3% +4.9%

7:30 am Q3 Unit Labor Costs -8.9% -7.8% -8.9%

12-10 / 7:30 am Initial Claims – Dec 5 725K 693K 712K

7:30 am CPI – Nov +0.1% +0.2% 0.0%

7:30 am “Core” CPI – Nov +0.1% +0.2% 0.0%

12-11 / 7:30 am PPI – Nov +0.1% +0.1% +0.3%

7:30 am “Core” PPI – Nov +0.2% +0.2% +0.1%

9:00 am U. Mich Consumer Sentiment- Dec 76.0 78.0 76.9

The attached information was developed by First Trust, an independent third party. The opinions are of the listed authors at First Trust Advisors L.P, and are independent from and not necessarily those of RJFS or Raymond James.  All investments are subject to risk. There is no guarantee that these statements, opinions, or forecasts provided in the attached article will prove to be correct. Individual investor's results will vary. Past performance does not guarantee future results. Forward looking data is subject to change at any time and there is no assurance that projections will be realized. Any information provided is for informational purposes only and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

Make Your Retirement Contributions Count

December 3, 2020

Dear Friends and Clients,

For the 2021 tax year, individual investors can contribute up to $6,000 to either a traditional or Roth IRA. If you’re age 50 or older, you can contribute an extra $1,000. I wanted to remind you so you can take full advantage of your ability to save toward retirement. Contributing as much as you can as early as possible allows those assets more time to potentially grow and compound. Keep in mind that contributions generally must be made before you file your tax return in April.

You may also contribute up to $19,500 to applicable 401(k), 403(b) and 457 plans, SAR-SEP plans and the federal government’s Thrift Savings Plan. The catch-up contribution limit for individuals age 50 or older remained $6,500. Employee contributions to qualified plans generally must be made by December 31.

Review the 2021 Retirement Plan Limits worksheet below for more details.

Screenshot%2B%252871%2529.jpg


If you have any questions about these limits or your retirement planning in general, feel free to contact us.

Sincerely,

Matt Goodrich, Financial Advisor                 Larry Goodrich, CFP ®

President, Goodrich & Associates, LLC       Vice President, Goodrich & Associates, LLC

Branch Manager, RJFS                                  Co-Branch Manager, RJFS


Raymond James financial advisors do not render advice on tax matters. Please consult a qualified professional regarding tax matters.

S&P 4,200 - Dow 35,000

Monday Morning Outlook

Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 12/1/2020

In December 2019, we made a year-end 2020 forecast of 3,650 for the S&P 500. With the index closing Friday at 3,638, that looks like a very good call.

But we’d be fibbing if we didn’t admit to getting whipsawed by COVID-19. In the spring the S&P 500 fell as low as 2,237, pricing in a massive drop in corporate profits. We remained bullish but revised our year-end forecast down to 3,100. Then, in August, after analyzing data on COVID-19 and assessing the actual impact of shutdowns on growth and profits, we lifted our year-end S&P target for 2020 back to 3,650.

For next year, the fundamentals continue to suggest a bullish outlook. Our year-end 2021 call for the S&P 500 is 4,200 (up about 15% from last Friday), and we expect the Dow Jones Industrial Average to rise to 35,000.

We rely on our Capitalized Profits Model. The model takes the government’s measure of profits from the GDP reports, discounted by the 10-year US Treasury note yield, to calculate fair value. And, last week, corporate profits for the third quarter were reported at a record high, up 3.3% from a year ago.

The question is: what discount rate should we use? If we use the current 10-year Treasury yield of 0.84%, our model suggests the S&P 500 is grossly undervalued. But this is because the Federal Reserve is holding the entire interest rate structure at artificially low levels. Using these rates distorts valuations.

Using third quarter profits, it would take a 10-year yield of 2.8% for our model to show that the stock market is currently trading at fair value. And that assumes no further growth in profits.

Right now, in spite of Fed pressure to hold rates down, we expect the 10-year note to finish 2021 in the range of 1.25% to 1.5%. Nonetheless, we have chosen to use a more conservative 2% discount rate in our Capitalized Profits model. Using third quarter 2020 profits, that creates a fair value estimate for the S&P 500 of 5,150. And this does not take into account the highly likely boost to profits in the year ahead. As a result, we believe our year-end 2021 forecast of 4,200 is easily within reach.

Obviously, the year ahead is not without risk. Perhaps the various vaccines will be rolled-out more slowly than anticipated. Perhaps, the Georgia Senate elections in early January result in a House, Senate, and White House that all agree to more aggressive tax hikes than markets currently anticipate. Perhaps, perhaps, perhaps.

More likely, we anticipate the vaccines will work roughly as advertised, and businesses will continue to improve in handling the obstacles posed by the illness and government shutdowns alike. Meanwhile, the Senate should remain a check on aggressive tax hikes, and the federal courts may curb excesses in regulation. New entitlements? Highly unlikely. In addition, it looks like trade conflicts with other countries will ease.

We have been bullish since 2009, not because we are perma-bulls, as our detractors like to say, but because the fundamentals say we should be. Profits and interest rates drive stocks, we let these factors determine our outlook. Not politics, not fear, not greed…just math.

Date/Time (CST) U.S. Economic Data Consensus First Trust Actual Previous

11-30 / 8:45 am Chicago PMI – Nov 59.0 62.4 58.2 61.1

12-1 / 9:00 am ISM Index – Nov 58.0 57.9 59.3

9:00 am Construction Spending – Oct +0.8% +1.3% +0.3%

afternoon Total Car/Truck Sales – Nov 16.1 Mil 15.9 Mil 16.2 Mil

afternoon Domestic Car/Truck Sales – Nov 12.4 Mil 12.4 Mil 12.7 Mil

12-3 / 7:30 am Initial Claims – Nov 30 765K 765K 778K

9:00 am ISM Non Mfg Index – Nov 56.0 56.0 56.6

12-4 / 7:30 am Non-Farm Payrolls – Nov 500K 490K 638K

7:30 am Private Payrolls – Nov 608K 590K 906K

7:30 am Manufacturing Payrolls – Nov 46K 47K 38K

7:30 am Unemployment Rate – Nov 6.8% 6.8% 6.9%

7:30 am Average Hourly Earnings – Nov +0.1% +0.1% +0.1%

7:30 am Average Weekly Hours – Nov 34.8 34.8 34.8

7:30 am Int’l Trade Balance – Oct -$64.8 Bil -$64.8 Bil -$63.9 Bil

9:00 am Factory Orders – Oct +0.8% +0.6% +1.1%

The attached information was developed by First Trust, an independent third party. The opinions are of the listed authors at First Trust Advisors L.P, and are independent from and not necessarily those of RJFS or Raymond James.  All investments are subject to risk. There is no guarantee that these statements, opinions, or forecasts provided in the attached article will prove to be correct. Individual investor's results will vary. Past performance does not guarantee future results. Forward looking data is subject to change at any time and there is no assurance that projections will be realized. Any information provided is for informational purposes only and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance.

What To Make Of Dow 30K

Thoughts on The Market

Larry Adam, CFA, CIMA®, CFP®, Chief Investment Officer

November 24, 2020

After recovering from its COVID-driven decline just last week, the Dow Jones Industrial Average has another record to celebrate. The index reached a major milestone as it closed above the 30,000 level for the first time on record today—its ninth new record high this year. If the month ended today (month-to-date: +13.4%), it would be the best month for the Dow Jones Industrial Average since January 1987 (+13.8%) and the best November since 1928. A wonderful way to celebrate the Thanksgiving holiday!

But what does it mean? The short answer is that the Dow is now up over 5% year-to-date on a price return basis, and that is has rallied more than 60% from its March 23 lows to fully recover its losses and once again hit record highs. Not too shabby! While these 1,000 point milestones are always hyped in the news headlines, we like to put them into perspective. For example, it is important to recognize that it has been more than 300 days since the last 1,000 point milestone—more than double the average duration for the previous ten one-thousand point increments—and the annualized return of 4.1% is the fifth lowest of any 1,000 point milestone on record. Incidentally, this 1,000 point increment only represented a 3.4% increase as each milestone going forward gets increasingly smaller.

The slowness of this milestone momentum is unsurprising given the historic levels of volatility experienced since the Dow reached the 29,000 level in mid-January, which was just prior to the COVID-driven drawdown. While the current COVID surge remains a key risk, a multitude of effective vaccine candidates and decreased levels of political uncertainty have overshadowed it. Nevertheless, the economic recovery from the COVID-induced recession has led to vast levels of dispersion beneath the Dow’s surface. In accordance with our expectation for a K-shaped economic recovery, constituents in the tech and home improvement areas have contributed heavily in this last 1,000 point gain. More specifically, while the Dow is up ~4% since the last milestone, leaders such as Apple (+49%), Walmart (+31%), and Home Depot (+22%) have lifted the index while constituents in the Industrial and Energy sectors, such as Chevron (-18%) and Boeing (-34%), have detracted.

Is the Dow Jones expensive and should we adjust portfolios? Given the recent strong rally in the equity market, we have grown more cautious in the near term as valuations (24.4x LTM P/E) are the most expensive they have been since at least 2001. However, despite the potential for near-term volatility, our positive outlook for equities over the longer term is supported by fundamental factors such as our forecast for a bounce back in economic activity in 2021, expectations for a substantial earnings rebound in 2021, an accommodative Federal Reserve, and heightened levels of cash still on the sidelines. With our optimistic long term outlook, we remind investors that timing the market is a difficult task, and we would not use psychological levels such as these to make portfolio changes.

TOTM+11.25.20.jpg

All expressions of opinion are those of Investment Strategy and not those of Raymond James & Associates, Inc. and are subject to change. Information contained in this report was received from sources believed to be reliable, but accuracy is not guaranteed. Past performance is not indicative of future results. No investment strategy can guarantee success. There is no assurance any of the trends mentioned will continue or that any of the forecasts mentioned will occur. Economic and market conditions are subject to change. Investing involves risks including the possible loss of capital. The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stocks of companies maintained and reviewed by the editors of the Wall Street Journal. It is not possible to invest directly in an index. Further information regarding these investments is available from your financial advisor. Material is provided for informational purposes only and does not constitute a recommendation.

Giving Thanks, Double Dip Unlikely

Monday Morning Outlook

Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 11/16/2020

Give Thanks! The US economy continues to heal. Payrolls keep growing, unemployment claims - though still elevated - are shrinking, key measures of the manufacturing and service sectors remain well into positive territory, and, as this week should show, both retail sales and industrial production remain on an upward trajectory.

While some investors are concerned about the near-term outlook for the economy given the recent increase in cases of COVID-19, we have yet to see signs of a double-dip recession. Yes, some locations have begun imposing new limits on economic activity, and others may follow. But businesses have come a long way, learning how to adapt and move forward from the mid-March environment, back when dealing with COVID19 was brand new.

Think about businesses built around people commuting to work or leaving the office and going out to lunch; those operations have already shrunk substantially, putting another decline of that magnitude virtually out of the picture. Meanwhile, consumers have shifted their spending, generating jobs elsewhere. For example, home improvements are on track to hit a calendar-year record high in 2020. Housing starts will be the highest for any year since the crash in housing more than a decade ago. Warehousing & storage jobs are at a record high, as are courier & messenger jobs.

We don’t have the data yet, but migration between states and cities appears to have picked up substantially in 2020, as people leave areas that have experienced either excessive violence or draconian pandemic-related lockdowns. This is just another piece of evidence that businesses and individuals have found ways to continue being productive in the face of unprecedented events. For this, and other reasons, we don’t see a double-dip recession.

Imagine being told back at the beginning of 2020 that the world was about to be hit by a global pandemic that would lead to massive government-imposed shutdowns of business activity around the country. Imagine being told that we were going into a sudden (and sharp) recession which would see the largest single-quarter decline in economic activity since the Great Depression.

As an investor with that knowledge, what would you have done? Would you bail out of the stock market completely, or go all-in? We watched many run for cover as stocks fell sharply.

And yet, as of the close on Friday, the S&P 500 was up 11.0% year-to-date, and that doesn’t include reinvested dividends. The market is up for a number of reasons. 1) The S&P 500 includes many large tech companies that we could not have lived without, and many companies considered “essential.” 2) The Federal Reserve pushed the discount rate down significantly. 3) Government stimulus helped support consumer spending. 4) Companies adapted and lowered expenses, and 5) Many people accepted the risk of behaving somewhat normally as they looked at the data surrounding the virus.

The resilience of the economy and corporations has rarely been tested as it was this year. This experience, combined with recent announcements about vaccines and therapies, will lead to further economic growth. When a business had no idea how long it would be before a vaccine for COVID-19 was available, it made sense to postpone some investments indefinitely. But when the distribution of an effective vaccine looks like it’s around the corner, they can begin to take action on long-term plans even before the economy is fully healed. Much of the uncertainty – be it about vaccines, the Supreme Court, or the elections - has now more or less passed.

Some uncertainty remains, it’s never fully gone, but when we compare the unknowns of today to that of just seven months ago, the risk to remaining invested in great companies has substantially declined. Give thanks for progress. A double-dip, while always possible, is unlikely.

Date/Time (CST) U.S. Economic Data Consensus First Trust Actual Previous

11-16 / 7:30 am Empire State Mfg Survey – Nov 13.8 13.5 6.3 10.5

11-17 / 7:30 am Retail Sales – Oct +0.5% +0.3% +1.9%

7:30 am Retail Sales Ex-Auto - Oct +0.6% +0.3% +1.5%

7:30 am Import Prices – Oct 0.0% -0.2% +0.3%

7:30 am Export Prices - Oct +0.2% -0.1% +0.6%

8:15 am Industrial Production – Oct +1.0% +0.8% -0.6%

8:15 am Capacity Utilization – Oct 72.3% 72.0% 71.5%

11-18 / 7:30 am Housing Starts – Oct 1.460 Mil 1.471 Mil 1.415 Mil

11-19 / 7:30 am Initial Claims – Nov 14 700K 697K 709K

7:30 am Philly Fed Survey – Nov 22.0 31.0 32.3

9:00 am Existing Home Sales – Oct 6.450 6.680 Mil 6.540 Mil

The attached information was developed by First Trust, an independent third party. The opinions are of the listed authors at First Trust Advisors L.P, and are independent from and not necessarily those of RJFS or Raymond James.  All investments are subject to risk. There is no guarantee that these statements, opinions, or forecasts provided in the attached article will prove to be correct. Individual investor's results will vary. Past performance does not guarantee future results. Forward looking data is subject to change at any time and there is no assurance that projections will be realized. Any information provided is for informational purposes only and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance.

No Wave is Good News For Stocks

Monday Morning Outlook

Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 11/9/2020

While the election is still not certified, and court battles will drag on, it appears that we can draw two firm conclusions from the 2020 election. First, the pollsters were horribly wrong again. Secondly, American voters do not want a radical shift in economic policy.

While Vice President Biden declared victory based on statistical evidence compiled by the media, there remains some ambiguity. States have not yet formally certified their election results, President Trump is pushing back with court cases, and recounts will be automatic in some states because of the closeness of the results. That said, the odds favor a Joe Biden Presidency for the next four years.

But, for at least the next two years, he will be interacting with a Congress that looks much different from the Blue Wave that pollsters expected. We know it is 2020, and anything can happen, but after Alaska and North Carolina report, it appears that Republicans will have at least 50 seats in the US Senate. The outcome of two runoff elections in Georgia, taking place in early January, will determine the final Senate make-up and it appears Republicans will win at least one of those.

In addition, Democrats lost perhaps 10 seats in the House of Representatives and when all the counting is done, we expect the Democrats will have about 224 seats versus about 211 for Republicans. Because mid-term elections have historically favored the party out of power, this result is causing the moderate wing of the Democrat party to push back against their more progressive members.

This pushback has teeth because Republicans around the country, in both House and Senate races, generally won by greater margins or lost by narrower margins than President Trump in their districts and states. And Republicans increased their power at the state legislative level.

As far as policy goes, what all this means is that a major tax hike, the Green New Deal, Medicare for All, and court packing are off the table. Yes, a Biden Administration will generate more rules and regulations, but the federal courts and all those Trump appointees during the past four years are likely to make sure agencies and departments stick to their legal mandates as passed by Congress.

In terms of legislation, we do expect Congress to pass a stimulus bill in the lame duck session, but it will not be the $3 trillion that Speaker Pelosi and the Democrats were pursuing before the election. It will not bail-out the states, which is particularly painful for Illinois, but we still expect a $1 trillion package to help with distributing a vaccine and provide more money for unemployed workers.

Next year, investors should expect some sort of infrastructure spending package, passing with bipartisan support. Because President Biden will need to get some sort of tax victory, look for an increase in the itemized deduction for state and local taxes, to around $20,000 from the current level of $10,000. Normally the GOP would oppose this policy change – it’s a bigger tax cut for residents in high-tax states, who tend to vote for Democrats, than for people in low tax states, who tend to vote for Republicans – but it’s still a tax cut, not a hike.

Trade wars are off the table, however, it will be hard for a new White House to justify going soft on China or for reversing progress made toward peace in the Middle East.

Meanwhile, the economy continues to grow and corporate performance continues to improve. According to FactSet, 89% of all S&P 500 companies have reported earnings for the third quarter and 86% of them have reported earnings above expectations. This is happening for two reasons. First, revenues have been better than expected, and second, costs have been cut as companies have adapted to challenging times. Productivity is up 4.1% from a year ago.

With news of an effective vaccine, expectations that fiscal policies will not change in any major way, continued low interest rates, and the entrepreneurial power of the US economy, the stock market is well on its way to continue making new highs. As we have reminded investors over and over, personal political preferences can cloud judgement. This past week makes that point, powerfully.

Date/Time (CST) U.S. Economic Data Consensus First Trust Actual Previous

11-12 / 7:30 am Initial Claims – Nov 7 725K 731K 751K

7:30 am CPI – Oct +0.2% +0.2% +0.2%

7:30 am “Core” CPI – Oct +0.2% +0.2% +0.2%

11-13 / 7:30 am PPI – Oct +0.2% +0.2% +0.4%

7:30 am “Core” PPI – Oct +0.3% +0.2% +0.4%

9:00 am U. Mich Consumer Sentiment -Nov 82.0 82.3 81.8

The attached information was developed by First Trust, an independent third party. The opinions are of the listed authors at First Trust Advisors L.P, and are independent from and not necessarily those of RJFS or Raymond James.  All investments are subject to risk. There is no guarantee that these statements, opinions, or forecasts provided in the attached article will prove to be correct. Individual investor's results will vary. Past performance does not guarantee future results. Forward looking data is subject to change at any time and there is no assurance that projections will be realized. Any information provided is for informational purposes only and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

No More Lockdowns

Monday Morning Outlook

Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 11/2/2020

As the US opened up, real GDP rebounded sharply in the third quarter, growing at a 33.1% annual rate. However, real GDP is still down 2.9% from a year ago and the economy got a huge boost from spending by the federal government, which borrowed from the future in order to allow people to spend today.

The federal government spent $6.55 trillion in the Fiscal Year ending September 30, 2020, up 47.3% from FY2019. In total, the federal government spent 31.2% of GDP, the highest share since 1945. In the final year of World War II, national defense spending was 36.6% of GDP, while all other spending combined was only 4.4%. This past year, military spending was 3.5% of GDP, all other spending combined was 27.7%.

Some of this money was spent directly “fighting” the virus – ventilators, PPE, field hospitals, payments to hospitals for COVID-19 patients – but most was used to support small business and workers during the pandemic. To put this in perspective, non-defense spending in 2020, as a share of GDP was 40% larger than its previous peak of 19.8% of GDP back in 2009.

This can’t continue. Although the current debt of the US government is manageable, and would be even more so if we locked in low interest rates by issuing longer-term debt securities, that doesn’t mean we can indefinitely run annual budget deficits of more than $3 trillion, like we did last year.

Super-high spending during World War II was a price America decided to pay in order to preserve civilization and the American way of life. Now we’re spending massive amounts so we can keep businesses shut to try to fight a virus.

Certainly, some measures need to be taken to secure the most vulnerable, like the elderly, or people with underlying health problems. But we also need to come to grips with the fact that shutdowns cause long-term harm. We all know the physical and mental health problems that business and school closures have on people. These are real. What is talked about less is the fact that the kind of government spending we are seeing can have long-term consequences for the economy and our ability to deal with future problems. This is compounded by the fact that our government wants another $1 - 3 trillion in spending to address continuing economic problems.

A vaccine may come along that helps us deal with COVID-19 (and we hope it does), but that vaccine will only help with “one” virus, not all of them. At least by winning WWII we stopped anyone from trying to take over the world.

If another virus comes along, will we do the same thing – shutdown the economy, print money and spend – again?

We certainly hope not. The debt and money printing the US has done can only be absorbed by economic growth in the years to come. After WWII, the US economy expanded rapidly, partly because it was less damaged by war, which allowed us to reduce the debt burden as a share of GDP. This time is different. We can’t lockdown again.

Date/Time (CST) U.S. Economic Data Consensus First Trust Actual Previous

11-2 / 9:00 am ISM Index – Oct 55.8 56.2 59.3 55.4

9:00 am Construction Spending – Sep +1.0% +0.7% +0.3% +1.4%

11-3 / 9:00 am Factory Orders – Sep +1.0% +0.5% +0.7%

afternoon Total Car/Truck Sales – Oct 16.5 Mil 16.0 Mil 16.3 Mil

afternoon Domestic Car/Truck Sales – Oct 12.5 Mil 12.5 Mil 12.8 Mil

11-4 / 7:30 am Int’l Trade Balance – Sep -$63.9 Bil -$63.9 Bil -$67.1 Bil

9:00 am ISM Non Mfg Index – Oct 57.5 57.6 57.8

11-5 / 7:30 am Initial Claims - Oct 31 735K 730K 751K

7:30 am Q3 Non-Farm Productivity +5.0% +7.6% +10.1%

7:30 am Q3 Unit Labor Costs -10.0% -13.6% +9.0%

11-6 / 7:30 am Non-Farm Payrolls – Oct 600K 600K 661K

7:30 am Private Payrolls – Oct 700K 700K 877K

7:30 am Manufacturing Payrolls – Oct 53K 35K 66K

7:30 am Unemployment Rate – Oct 7.7% 7.6% 7.9%

7:30 am Average Hourly Earnings – Oct +0.2% +0.2% +0.1%

7:30 am Average Weekly Hours – Oct 34.7 34.6 34.7

2:00 pm Consumer Credit– Oct $8.3 Bil $5.0 Bil -$7.2 Bil

The attached information was developed by First Trust, an independent third party. The opinions are of the listed authors at First Trust Advisors L.P, and are independent from and not necessarily those of RJFS or Raymond James.  All investments are subject to risk. There is no guarantee that these statements, opinions, or forecasts provided in the attached article will prove to be correct. Individual investor's results will vary. Past performance does not guarantee future results. Forward looking data is subject to change at any time and there is no assurance that projections will be realized. Any information provided is for informational purposes only and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

Economy Poised for More Growth

Monday Morning Outlook

Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 10/26/2020

To reiterate, this Thursday morning we expect the government to report a huge, and virtually unprecedented, surge of a 33.4% annualized growth rate in real GDP growth for the third quarter. There are still a few monthly reports due this week that could affect our forecast, but only slightly.

Obviously, the US will not keep growing at this rate, but the question remains about how much might it slow? Believe it or not, because we have September data – the "jumping off point" for the fourth quarter – we can start to make some early estimates about reported future growth rates. Right now, an annualized growth rate of 5% is highly possible and it could be even higher.

All of this depends on COVID-related shutdowns. As the US conducts more that 1 million tests per day, and uses highly sensitive tests as well, there has been a new "surge" in COVID-19 cases. In spite of this surge in new cases, deaths have remained relatively stable. This means the "case fatality rate" is falling. Nonetheless, because of fear about the surge in new cases, some politicians, like Illinois Governor Pritzker, have shutdown activities like indoor dining. So far, these new shutdowns are not widespread enough to alter the course of the macro-economy in any significant way, but that could obviously change.

If it doesn't, and US economy holds its September activity level, the fourth quarter is looking strong. Take cars and light trucks, for example, which sold at a 16.34 million annual rate in September versus the third quarter (July, August and September) average of 15.38 million. In other words, auto sales were an annualized 27.3% higher in September that the third quarter average. So, if vehicle sales flatline in the fourth quarter (October, November and December), they would be 27.3% higher, at annual rate, versus the third quarter average. The same goes for retail sales outside the auto sector: even if they remain unchanged in October, November, and December, the September level was already 4.7% annualized above the average level for Q3.

Single-family home building shows a similar pattern. Without any change in single-family housing starts for the last three months of the year, the quarterly average would still show growth at a 28.8% annual rate versus the Q3 average. Note that this is not true for multi-family housing starts, but those starts are so volatile from month to month that the jumping off point in September is less meaningful.

Rest assured we are not just cherry-picking the very best data. The total number of hours worked in the private sector were up at a 3.9% annual rate in September versus the Q3 average. Manufacturing output was up at a 0.8% annual rate in September versus the Q3 average. Both the ISM Manufacturing and ISM Service indexes finished September higher than the average for the third quarter. So, while some data reflect very strong growth and other data reflect more moderate growth, the general direction of the economy remains positive.

Given that we are nearing a presidential election, there are many unknowns regarding public policy for the next several months. Future tax rates on regular income, capital gains, and dividends, spending, tariffs, regulations,...all up for grabs. Who knows, maybe even the addition of states, additional limits on the Senate filibuster, and Court packing, as well.

That's why it's important to take stock of where we are right now. A full recovery from the disaster earlier this year is a long way off, but we believe that recovery started several months ago, and the early read is that the fourth quarter should be solid, as well.

The attached information was developed by First Trust, an independent third party. The opinions are of the listed authors at First Trust Advisors L.P, and are independent from and not necessarily those of RJFS or Raymond James.  All investments are subject to risk. There is no guarantee that these statements, opinions, or forecasts provided in the attached article will prove to be correct. Individual investor's results will vary. Past performance does not guarantee future results. Forward looking data is subject to change at any time and there is no assurance that projections will be realized. Any information provided is for informational purposes only and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected.