In today’s Steady Investor, we look at key factors that we believe are currently impacting the economic recovery and what could be next for the markets such as:
U.S. Business Applications Rise 14% – Economic data continues to paint a mixed picture of the recovery. On the one hand, the U.S. economy has lost over 11 million jobs and $2 trillion in output since the pandemic ravaged the expansion. Even though the August unemployment rate ticked down to 8.4%, the number of open U.S. jobs plateaued late this summer. On the other hand, year-to-date U.S. business applications are up 14% from the same period last year, signaling pockets of “animal spirits” emerging across the economy.1 To be fair, some of the business formations are happening as a result of job losses – unemployed Americans are seeking new ways to enter the “gig economy” or form businesses that enable remote work. Other analysts say the current surge in business formation may not necessarily replace paid employment, but rather serve as a source of supplemental income for households. This latter theory may ultimately prove correct, as data from the U.K., France, Singapore and Japan also show increases in business formation. Whether or not this business formation is borne from optimism about the economic recovery – or sheer necessity to stay above water until the pandemic fades – cannot truly be calculated.
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How Can You Protect Your Retirement During this Crisis?
The challenge many retirement investors are facing through this crisis is knowing where to invest. Cash won’t do. But a portfolio invested in stocks with a strong track record of dividends and dividend growth may give investors the potential for a stable and predictable source of income in retirement.
To learn more about how to use dividend-paying stocks in your strategy to potentially generate cash flow for retirement, check out our guide “Retirement’s Uphill Battle: Generating Income in a Low Interest Rate Environment.”
If you have $500,000 or more to invest, click on the link below to get our free guide today!
Retirement’s Uphill Battle: Generating Income in a Low Interest Rate Environment.2
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Surging Demand in the Mortgage Market – Home sales in the United States soared 25% in July, posting the best month ever recorded. The resilience of the housing market has puzzled many market-watchers and investors, but perhaps it shouldn’t – as the economy accelerates towards digitization and remote work capabilities, workers and families are increasingly seeking more space to build-out home offices and make home-work life more comfortable. Some economists have referred to the current economic recovery as “K-shaped,” inferring that some American households are benefiting and growing wealth during and in the wake of the pandemic, while others struggle more acutely as the in-person economy slowly reopens. Many Americans with work-from-home capabilities are in higher income brackets and have not lost jobs in this recession, meaning they are capable of moving and/or purchasing second homes. And then there’s the matter of interest rates. Mortgage rates have hit new lows on a few occasions this year, dipping below 3% for the first time in July. According to the mortgage-data firm Black Knight, lenders dished out $1.1 trillion in home loans between April and June, marking the best quarter since the company started record-keeping in 2000. Activity in the mortgage market is also being fueled by refinancing, which is up 200% from a year ago.3
Don’t Forget About Brexit – If you haven’t heard anything about Brexit in months, it’s because no one has been talking about it. But Brexit is still very much an economic issue for Europe looming in the backdrop of the pandemic, as European Union and U.K. negotiators remain far apart on a trade deal with a deadline approaching. If trade negotiators cannot find common ground by the end of the year, about $800 billion in annual tariffs and other trade barriers go into effect – which hurts both sides in a time when economic growth is sorely needed. Interestingly, one of the sticking points of any deal is that U.K. Prime Minister Boris Johnson wants to escape EU rules limiting state subsidies for private companies. Though Britain slightly lags Germany and France in the amount of state subsidies (relative to GDP) it provides private companies, the push to increase subsidies runs counter to Britain’s decades-long stance that the government should not pick winners in the private sector. EU rules limit subsidies that member governments can provide to private sector companies, so as to avoid any company gaining an unfair advantage in the trade bloc. These rules have been temporarily suspended as a result of the pandemic, but plans are in place to reinforce them when the Covid-19 risks fade – an outcome Britain plans to avoid.4
How to Invest During the Pandemic? You may be wondering where to invest during this unprecedented time, as cash won’t do. I would suggest considering stocks that are growing earnings and dividends and have a track record of doing so.
To learn more about how to use dividend-paying stocks in your strategy to potentially generate cash flow for retirement, check out our guide “Retirement’s Uphill Battle: Generating Income in a Low Interest Rate Environment.5”
If you have $500,000 or more to invest, click on the link below to get our free guide today!
Disclosure