The Game of Life

“In three words I can sum up everything I’ve learned about life: it goes on.”

~ Robert Frost

Question: As we emerge from the economic shutdown of the pandemic, what tips might you provide regarding an investment game plan?

Answer: Board games, cards and dominoes were primary sources of entertainment last year with sales soaring during the pandemic. Our circle of friends contributed to that increase as we spent many evenings sharing dinner at each other’s homes playing Mexican Train. As an added benefit beyond socialization, we refined skills of cooperation, problem solving, emotional intelligence and reflective logic in the process. These are the same traits critical to successful investment strategies. We’ll use some nostalgic games to draw parallels with developing investment game plans. As a child of the sixties and seventies, a few of my favorite games were Monopoly® for the banking experience, and The Game of Life® because I had my own car. Today we face a whole new game requiring a fresh financial toolkit to solve the mysteries of the market. 

Accumulating cash and property was the goal of Monopoly® which can be compared to today’s economy with a collective $2 trillion in excess spending capacity as a result of Congress’ generous stimulus driven “Community Chest.” Yes, there is the “Income Tax” card to consider, but there is also a “Get Out of Jail Free” card which is the equivalent of us getting out of our homes ready to join friends for dinner, sporting events, concerts, and travel. Economic growth is getting workers back on the job and 2021 GDP (gross domestic production) will likely meet, if not exceed Raymond James expectation of 6.2% and remain strong into 2022. Milton Bradley introduced Operation® in the 1960s teaching youngsters about doctoring, precision, and healing. The money doctors at the Federal Reserve will be delicately helping the economy recover from the ultra-accommodative policies without being zapped by inflation. A steady hand and patience is key to our future.

The game of Twister® requires ingenuity and flexibility which will be important for bond markets showing near record-low, if not negative yields. Positive yields in the US seem like a winner, continuing to attract foreign investors. However, the healthy US economic environment and the uptick in inflation could push yields higher. These factors keep yields in a tight range with our fixed-income team expecting the 10-year Treasury to move modestly higher and finish the year at about 2.0%. If yields move decisively above 2%, don’t be surprised if the Fed adds its own ‘Twist’— purchasing bonds on the long end of the curve to keep interest rates lower. While the strength and breadth of the economy remain solid, valuations continue to favor the highest quality bonds from a risk/return perspective. 

Last winter, our family revisited the game Connect Four® which can be used as an analogy for why this market may continue for the foreseeable future: 1. a still-improving macroeconomic backdrop; 2. attractive valuations, especially versus bonds; 3. increased shareholder activities in the form of growing dividends and buybacks; and 4. strong earnings growth expectations. With earnings growth expected to surge more than 60% during the second quarter and maintain a vigorous trend into 2022, equities should grind higher, albeit at a slower pace than over the last year. We revised our 2021 year-end target for the S&P 500 to 4,400 and expect it to rise to 4,600 by year-end 2022. A modest corporate tax increase to 25% (from the current 21%) shouldn’t deter a string of positive quarterly earnings. While our bias remains more US-centric with a focus on US large-cap and small-cap stocks, it’s possible an acceleration in reopening in other parts of the world (like Europe) could lead to potential short-term trading opportunities. Our growth versus value positioning is more of a ‘draw’ as our preference for big-cap Technology and Consumer Discretionary is offset by our preference for Financials, Energy, and Industrials. 

Despite our optimistic message, there is no lack of potential Risk® including COVID variants, geopolitical tensions, and politics. However, taking on undue risk to your portfolio is Taboo®. Just like these classic games, the rules for investing remain timeless — adhere to your asset allocation strategy, periodically review your goals and objectives, don’t let emotion dictate your investment decisions, and, of course, work with your advisor. A successful investing team can make the real Game of Life ® even more enjoyable! Stay focused and plan accordingly.

While familiar with the tax provisions of the issues presented herein, Raymond James financial advisors are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. The opinions expressed are those of the writer as of July 5, 2021, but not necessarily those of Raymond James and Associates, and subject to change at any time. Information contained in this report was received from sources believed to be reliable, but accuracy is not guaranteed.  Past performance does not guarantee future results. Every investor’s situation is unique, and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

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This article provided by Darcie Guerin, CFP®, Vice President, Investments & Branch Manager of Raymond James & Associates, Inc. Member New York Stock Exchange/SIPC 606 Bald Eagle Dr. Suite 401, Marco Island, FL 34145. She may be reached at (239)389-1041, email darcie.guerin@raymondjames.com Website: www.raymondjames.com/Darcie.