Think of a day where wages are increasing at over 20% of companies, confidence in finding a job is so high people are willing to risk quitting a current job to go out in the job market, current borrowing rates are more than half of the longer term average and the cost of energy has fallen dramatically. That seems like a Pablo Picasso picture for a good economy, and it’s what we are seeing today.
Not only are wages rising, they are expected to rise the most since prior to the 2008 recession. So, more money in one's pocket, less money going out on recurring monthly expenses (mortgage, gas, etc) equals a healthy consumer that has the ability to spend. That’s where we believe the economy is today and why, despite headlines, we don’t believe we are going into a recession.
Remember that a healthy economy (or not going into a recession) doesn’t mean that we will always have a rising stock market. It’s our belief that market corrections will be shorter lived, and in our minds, the corrections provide opportunities for longer term investors. In fact, some of the recent information that we looked at on wages, continued to strengthen our belief. The two points to touch on are increasing wages and the quit numbers. Over 20% of companies are planning to raise wages in the next three months. Back in 2010, less than 5% were saying this. On top of this, the number of people choosing to leave (quitting) their current jobs is at levels we haven’t seen since the strong job market prior to 2008. This shows people's confidence that they will be able to find a job quickly. Otherwise, they would have stayed put.
With the cost to borrow on a 30-year mortgage at a rate near 4% versus the historical average going back to the 70’s of nearly 8.5%, more people are able to afford homes. With so much positive economic data, we should be looking at areas where we could benefit from this Pablo Picasso picture of the consumer in our economy which, by the way, makes up about 70% of our economic production. The first area in my mind is discretionary type companies like Disney, Amazon, and Starbucks. These are companies where if you were on a tight budget you likely wouldn’t spend money, but because you have a little extra cash you may take that trip to Disney World or splurge on Amazon or get that latte on the way to work.
I believe it also could stand to benefit financial companies in a few different ways. Based on the trends with people quitting jobs, we can see that consumer confidence is high which can lead to more borrowing. Now that we have higher interest rates banks are able to earn a little more money. The combination of these two factors could help financial companies' bottom lines. We are more in favor of gaining exposure to certain ideas like this via ETFs. This way we can be diversified at a low cost and we limit our individual stock risk, meaning the risk of one company falling more than others. This way we don’t have to worry about buying the individual banks.
Within our growth ETF models at Wela, we try to gain exposure to a couple of sectors at all times. Based on analysis like this, we adjust our ETF models once or twice during the year. If you want to learn more about the ETF models that we use for clients you can visit our Invest page, or you can create a free user profile to talk with our team.