One of the silver linings of the pandemic was an explosion of startups throughout the nation. After a 40-year decline, entrepreneurship rose from the ashes, and contrary to expectations continues to thrive today. What is behind this trend?

 

In 2020, the early days of COVID-19, as unemployment skyrocketed and businesses shut down by the thousands, 4.3 million new business applications were filed, according to the U.S. Census Bureau. That was one million more than in 2019.

 

The following year (2021), 1.8 million companies were formed, which was a record. Last year, the numbers dropped a little to 1.7 million applications, but still up 28 percent from the pre-pandemic days. Funny enough, the worst event of the last 100 years, COVID-19, was the trigger for this economic renaissance.

 

The pandemic was an unparalleled global catastrophe. As such, some of those pandemic start-ups were born out of necessity. The U.S. unemployment rate hit double digits. More than 30,000 businesses shut down. Waves of unemployed, with no prospect of finding another job in the lockdowns that swept the nation, started a business simply to survive.

 

At the same time, a surge in migration out of the infected urban centers to more rural, less populous areas, resulted in a surge in business startups. At the same time, the trend in work-from-home exploded.

 

Professional and technical services were two of the top sectors where entrepreneurs staked a claim, accounting for 23 percent of the net increase in all startups, according to the Economic Innovation Group (EIG), a Washington-based think tank. Another area that blossomed was support services for the elderly and disabled, a demographic group that was devastated by the virus. That area experienced a 13 percent growth rate.

 

One of the reasons that galvanized entrepreneurs of every age to try their hand at a new business was a decline in the barriers to entry. It turned out that starting a new business on the internet, for example, was much easier than they were back in the Financial Crisis of 2008. Entrepreneurial neophytes planning business startups now have widely available broadband, even in many rural areas. There is also a much greater digital fluency in all things internet, and a mature and dynamic e-commerce marketplace. Those strengths make website creation, marketing, and online sales far easier to establish.

 

I should also give the government its due in its response to the economic fallout created by COVID-19. The Pandemic relief checks, for example, went a long way in providing the seed money for many of these new ventures. Of course, we now blame the government for spending too much during this period and igniting inflation, yet no one I know has offered to refund those checks to the federal government.

 

The question is whether the pandemic fallout has somehow reinvigorated the creative juices of all these modern-day Horatio Algers, or is this just a flash in the pan?

 

The relative steadiness in new business applications since 2020 indicates that this trend may be here to stay. When one looks at all sectors, rather than just those that were booming during the pandemic years, we find start-ups rising across most sectors. Only four out of 19 sectors, according to the Census Bureau, saw 2022 applications below pre-pandemic levels.

 

Across the nation, the southern United States experiencing the largest boom in startups, while the Northeast has the smallest. It is also encouraging that entrepreneurs were able to shake off the impact of a spike in inflation and threats of recession throughout last year. What we don't know is how many of these new businesses are simply part-time, side jobs earning a few bucks to supplement existing salaries.

 

As a guess, a survey conducted by Venture Forward, a multi-year research program from GoDaddy to quantify entrepreneurial activity, indicated that roughly 39 percent of micro business founders said their enterprise was a supplemental source of income. However, 67 percent of them would like to see their start-up become their full-time job.

 

The key to a flourishing future economy is greater economic dynamism. Those entrepreneurs that can flourish by providing new jobs, greater innovation, and productivity advancements could drive this nation's long-term growth. We could be on the verge of a much-needed shot in the arm from this group. I am betting on their success, how about you?

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

The gains of January are extending into February. Leading the gains are those stocks that suffered the worst declines last year. Can this runaway breakout in the averages continue?

 

The critical trigger that could have broken the markets has come and gone. The Federal Open Market Committee occurred on Wednesday, ending with another quarter-point hike in the Fed funds rate. The bears were convinced that Fed Chairman Jerome Powell would come out swinging with a hawkish monologue. It didn't happen.

 

In the Q&A session, Powell kept to the line that another rate hike is probable, headway against inflation is encouraging, and the central bank is on track to achieve its monetary goals.

 

"We can now say, for the first time, that the disinflationary process has started. We can see that," Powell said in answer to a question.

 

That sentence was worth more than a one percent gain on the S&P 500 Index and more than 2 percent on the NASDAQ in the last hour of the day on Wednesday, Feb. 1. For those who are scratching their head wondering why markets should be rallying in the face of a mild recession, continued higher interest rates, declining corporate earnings, and gloomy guidance from many corporate managements, the answer is simple.

 

Markets discount events six to nine months into the future. If the Fed feels confident in winning its inflation battle, then we are likely heading toward the end of additional interest rate hikes. That means the pressure on the economy and corporate earnings should begin to wane. The bull case is that by late summer, or sometime in the fall, we could see the end of the tightening regime of the Federal Reserve Bank.

 

Bulls say that at that point, the Fed might begin to loosen policy. I don't think that is in the cards, but simply a cessation of tightening would be enough for stocks to rally. Stocks that would benefit the most from such a scenario are growth stocks, with no earnings, but plenty of future potentials. These are the Kathy Wood stocks that were decimated last year. That group of equities has been soaring since the beginning of the year.

 

It is also the reason that so many companies that have reported disappointing earnings saw their stocks decline at first, but then swiftly recoup losses and forge higher. The reasoning behind those moves is that the present hit to profits and sales will likely disappear and be replaced by better earnings in the quarters ahead, so any dips should be bought.

 

Is there any guarantee that this bullish scenario will come to pass? Of course not, but for now the most recent data (CPI, PPI, PCE) support a continued decline in inflation. Yields on a variety of bonds from U.S. Treasuries, Corporate, and junk bonds have declined as a result. The only fly in this goldilocks scenario has been the continued strength of the economy and the continued strength in the labor market.

 

At the end of the week, a spate of disappointing earnings results from three of the largest companies in the world — Apple, Amazon, and Google — seemingly dented the upward momentum in growth stocks. Those results were followed by the non-farm payrolls report on Friday morning that featured a blowout gain of 517,000 jobs. Economists were expecting 188,000-plus new jobs at best. The unemployment rate dropped to 3.4 percent versus the 3.6 percent expected.

 

Markets declined on the news, but it was not a rout by any means.

 

Last week, I wrote that my bearish case for the markets in February might not be correct. A bearish decline had become the consensus view, something that always makes me uncomfortable. The evidence seems to indicate stocks want to go higher from here not lower in the short term. Let's see what happens.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

In 2022, Congress increased the amount an individual can contribute to an Individual Retirement Account (IRA) as well as a 401(k), 403(b), and most 457 plans. If you have not already, it is time to increase your contributions for 2023 to take advantage of this opportunity.

 

If you missed it, the Internal Revenue Service (IRS) announced in October 2022 the largest-ever annual increase in 401(k) contributions. It boosted the maximum contribution limit by $2,000 to $22,500 for 2023. For those over 50 years old, an additional "catch-up" contribution will rise by $1,000 to $7,500. As for the contribution limits for an individual IRA, an additional $50 in contributions to $6,500 from $6,000 last year was implemented. The catch-up amount, however, remains the same at $1,000.

 

The IRS also raises the income threshold for which tax deductions for IRA contributions will be phased out. For those who are not aware, at a certain level of income, you can still contribute to a tax-deferred account, but you don't get a tax deduction when you do. The new income bar will be set at $73,000 to $83,000 for individuals and single heads of households, and for married couples filing jointly, the new threshold will be $109,000 to $129,999 for married couples.

 

These are generous benefits, and they are occurring at just the right time. Unfortunately, many savers may be hesitant to take advantage of this gift. There is a tendency among those saving for retirement to reduce or postpone contributions to their retirement accounts when the equity markets are declining, or inflation is rising. Allianz Life, a Minneapolis-based insurance company, found in a recent survey that 54 percent of Americans reduced or stop contributions to their retirement savings.

 

On the surface, with trillions of dollars wiped out of retirement savings, I can understand this hesitation. Human nature is such that the first reaction in a down market to putting more money in the markets is not to. With the average retirement account down 20 percent in 2022, I often hear "Why put good money after bad in a market like this?"

 

The answer is that the best time to invest is when the markets are going down, not up. Furthermore, at least for those saving through a 401(k) or similar plan, contributions are made monthly and usually on autopilot. That means as the markets decline each month you contribute your cost basis on a particular fund or stock is going down — not up. That means you are getting a better price month after month on your investments and buying more shares at the same time.

 

"Yes," you may say, "but the total amount in my retirement plan is going down." That's true, but for how long?

 

Remember, this is money that you are saving for retirement. It is not money you will be spending next week or next year. Consider this: Since 1928, the benchmark S&P 500 Index has suffered through 21 bear markets, or, on average, one every 4.5 years. The typical bear market lasted 388 days or a little over one year. That means that every five years or so you get the opportunity to buy the market at a great price.

 

This year, you are getting a double whammy: the savvy saver is not only getting to buy at a great price, but Uncle Sam is allowing you even more tax-deductible money to spend in the form of increased contributions to your retirement plans across the board.

 

 If the bears are correct, sometime in this first quarter, the stock market may plummet once again. If it does, I suspect markets will rebound and likely go higher from there. Still not convinced then consider it this way; let's say you are in the market for a top-of-the-line, new car. Suddenly, your local dealership announces a sale on the auto you want at a 30 percent discount off the list price and offers you a credit on top of that, plus a guarantee that the car will appreciate over the next 15 years. would you buy it?

 

Hopefully, you have already increased your contributions for 2023. If you haven't, I suggest you call your back office and arrange to increase your monthly contributions right now. In the years to come, you will thank me for it. 

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

The economy grew faster than most expected in the fourth quarter. Unemployment continues to remain tame and corporate earnings, while not stellar, have been good enough to support financial markets this week.

 

Good news on the economy has been bad news for the stock market at least since the Fed has been tightening interest rates. The reasoning has been that stronger growth and employment would feed the inflation rate forcing even further tightening by the U.S. central bank and ultimately choking off the economy.

 

Now that inflation appears to be coming down, a bullish case is building that says we might get away with just a mild (as opposed to a full-fledged) recession. If so, corporate earnings would slow, but not fall off a cliff. Unemployment would rise, but not decidedly so, and a quarter or two of flat to slightly down GDP growth could suffice to continue pushing inflation lower. I call that the Goldilocks Scenario.

 

This week's macro data appeared to support that theory. U.S. fourth-quarter Gross Domestic Product for 2022 came in higher than expected at 2.9 percent versus an estimate of 2.6 percent. But that was down from the third quarter's 3.2 percent gain. Unemployment claims for the last week of 2022 fell by 19,000 to a seasonally adjusted 204,000. However, the number of temporary jobs, which usually leads to the overall unemployment rate is starting to decline.

 

The Fed's favorite inflation gauge, the Personal Consumption Expenditures Price Index, (PCE) came in a bit cooler in December. And corporate earnings, while not great, are still good enough for most stocks to maintain price support.

 

Most readers know that the quarterly earnings reports are a dance where the Street reduces earnings estimates low enough that most companies can "beat" estimates. Future guidance is therefore the focal point for investors. Coming into this week, traders were positioned for a "worst-case" scenario for most earnings announcements.

 

Microsoft is one of the most important stocks in the equity universe. It announced so-so earnings, but the stock leaped higher by 6 percent after the announcement because it could have been much worse. In the discussion after the announced results, however, management guided investors to expect fewer sales and profits in the quarters to come. The company's stock swooned in the after-hours. It dropped even further the next day and took the entire market down with it.

 

Traders decided at some point during the next day that the bad news was fully discounted and preceded to bid the stock back up to close even on the day. The same exercise occurred several times throughout the week on many stocks that announced earnings. On a macro level, the same thing happened on Thursday after the positive GDP quarterly data was announced. The markets spiked higher, but then gave it all back as the "good news is bad news" crowd reasserted themselves. In short, investors are grabbling to find a happy medium between the strength in the economy, the Fed's intentions toward future tightening, and the proper level for the markets given these unknowns.

 

It had been my view that the stock market could retest or even break last year's lows as early as February. I had predicted this unraveling as far back as early November of last year. It has now become the consensus view, which has made me increasingly uncomfortable.

 

If the bearish view were to come true, equities, as well as commodities and precious metals around the world would decline, interest rates would spike higher, and the U.S. dollar would skyrocket. I believe that would be a fantastic generational opportunity to buy the dip. Materials, gold, and silver as well as miners, would be high on my list of areas to accumulate. China and emerging markets would also be up there. 

 

If, on the other hand, my prediction fails to materialize, and the market continues to grind higher, we could ultimately see 4,370 on the S&P 500 Index, which is another 300 points higher from here, before all is said and done.

 

In the end, it all comes down to what the Fed will decide to do in its February FOMC meeting next week. The problem is that the higher the markets climb, the more dovish the Fed would have to be to support the market.

 

A continuation of their hawkish stance will disappoint the markets while sending the U.S. dollar and interest rates higher. If they moderate their message and hint at a possible pause to assess the results of past tightening, markets will continue higher. I wish I had a crystal ball, but I don't. However, either way, in the longer term, it seems that we end up in the same place, which is higher going into the second half of the year.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

As the New Year gets underway, the fitness industry is breathing a sigh of relief. It has been a rough three years for those who provide the means to a healthy body for millions of Americans, but times are changing for the better.

 

During the pandemic, one in four health and fitness facilities across the nation closed permanently. Americans, who were forced to hunker down at home either gave up their fitness routine overall or made do as best they could with a few dumbbells and maybe, if they could afford it, online membership to one of the many internet fitness sites such as Peloton.

 

Most readers are not aware that gyms and fitness studios were among the hardest-hit businesses during that period. First, it was the lockdowns, followed by limits on the number of people allowed to attend classes, or even to work out at the gym. Strict rules on wiping down equipment, wearing masks, and maintaining distances between members discouraged even the most die-hard members after a time.

 

While other services such as restaurants, bars, and other live venues were supported with federal aid, health clubs were left to survive on their own. The National Health & Fitness Alliance, an industry group, found that 25 percent of U.S. health clubs and studios closed permanently due to the pandemic. My gym, a nationwide franchise, was among the victims.

 

Personally, my wife, Barbara, and I are confirmed gym rats and have been for decades, so COVID-19 decimated our routines. Fortunately, we were early members of Peloton, so we already had the bike for several years before the pandemic. These online classes had already been included in our daily routine at home.

 

In addition, we own a rower, and a comprehensive set of weights, which we used when not at the gym. Thanks to that backup equipment, we managed to maintain our physical routines during this period. Of course, our living room suddenly became a mini gym, but our workouts were just too important to sacrifice. In addition, we supplanted our indoor activities with an increased level of outdoor hiking, lake swimming, kayaking, and aquacise.

 

However, we recognize that both of us are highly motivated individuals, and somewhat competitive. All I need to see is my wife huffing and puffing during one of her internet classes for me to jump on the rower, or go for a run shortly thereafter — but that's us. I recognize that not everyone is as motivated (obsessed) with physical fitness as we are.

 

For many, the health club functions as a community where social interaction and group motivation is as important as exercise for many members. To their credit, the industry fought back as membership plummeted, and did what it could to survive. They diversified their offerings to maintain and attract members.

 

Outdoor classes in parking lots, public parks, and beaches, even winter greenhouses, sprang up across the U.S. On the weekend, for example, one enterprising local gym set up shop in a lakeside parking lot. Berkshire Money Management, whose owner Allen Harris, is another dedicated gym rat, offered his company grounds as an outdoor venue for both yoga and workout enthusiasts.

 

By necessity, class sizes were reduced, and workout areas enlarged, while many gyms pivoted to online training sessions. Personal training has also come back into fashion. All these innovations seem to be working. Many facilities plan to continue and enlarge these services into a hybrid form of exercise that encompasses both the home and the fitness facility.

 

It is not as if the business is booming at health clubs quite yet. Foot traffic is still down 3 percent compared to the beginning of 2019, but up 40 percent compared to 2021, according to Placer.ai, which tracks foot traffic in the retail gym space. And don't forget we are in the optimal time of the year for new memberships at health clubs. The New Year resolutions crowd is joining gyms once again. If history is any guide, half of these new members will fall by the wayside within three months.

 

However, one unintended positive consequence of the pandemic for the industry is that it did drive home to most Americans the importance of a healthy body. The impact of COVID and its various mutations has proven to be far more serious for those individuals who are unhealthy, obese, and with chronic illnesses. That may change the equation in the psyche of many. In short, in a post-pandemic world, a healthy body could be the difference between life and death for many Americans.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.