When the pandemic first began last year – many economic experts feared the worst and anticipated the beginning of a long, painful recession. As we evaluate the outlook for the remainder of 2021 – it is becoming clear that we have not only avoided a lengthy recession, but parts of our economy are back to growing at pre-pandemic rates.
We have seen one of the strongest IPO markets in years1. Accelerated technological change over the past year is driving increased productivity and business investment in software and equipment. Consumers are spending at rates we have not seen in decades.2
Federal Reserve Chairman Jerome Powell said earlier this month that the economy’s showing signs of sustained improvement quicker than expected, crediting progress on vaccinations and the vast stimulus efforts. Due to the strengthening economy and higher inflation, Fed officials now expect to increase interest rates by half a percentage point by the end of 2023. They have also begun preliminary deliberations to eventually scale back the pace of bond purchases.3
Near term, we will see supply chain challenges and pent-up demand continue to impact inflation data, but inflation may not be as big of a concern as you would think. Prices for goods initially slipped when the pandemic began last year – so year-on-year price comparisons are not equal. The supply chain issues we are currently experiencing are not likely to last long term. And we should not forget that the pandemic has changed consumer preferences, so the rules on where prices are headed may no longer be the same.
“Job gains should pick up in coming months as vaccinations rise, easing some of the pandemic-related factors currently weighing them down,” Mr. Powell said.4 It is worth highlighting that while economic output is growing at the fastest pace since WWII5, the labor market is still recovering at an uneven rate. Industries that were severely impacted by the pandemic are just now starting to see signs of recovery.
In the markets, the S&P 500 and Nasdaq hit record highs in June following the announcements of a new joint infrastructure deal by the Biden administration and the Fed’s comments on interest rate hikes in the next two years. We are anticipating another quarter of strong corporate earnings. As of June 25, 2021, 66 of 103 S&P 500 companies that issue earnings per share guidance for the second quarter offered positive outlooks that exceeded consensus estimates, according to FactSet data.6 This would be the largest number of S&P 500 companies offering estimate-topping outlooks ever recorded since it started tracking this metric in 2006.
Business and consumer spending is also helping drive economic recovery. Companies are more confident in the economic outlook and are investing in software and computer equipment, up 11.7% in the first quarter of 2021, according to the Commerce Department. Building on the double-digit gains from the third and fourth quarters of last year, business investment is now higher than its pre-pandemic peak.7 These large capital investments continue to play a key role in helping to sustain the economic recovery.
American consumers are not only helping drive our economic recovery but the world’s as well. Despite high levels of unemployment over the last year, the average US household income – aided both by savings and government stimulus checks – has exceeded its pre-COVID level. With the vaccination rollout and the economy opening up, more Americans are confidently getting out and spending on services, goods (particularly imported goods), and travel. Deloitte estimates that U.S. households have built up about $2.8 trillion in total excess savings.8 The impact of the American consumer is being felt across the globe fueling expansion. This demand is also beginning to cause some countries to worry about inflation and their currencies.
All indicators point to us being firmly on the right path to recovery and growth, but we’re not in the clear just yet. Several factors can still impact our recovery. Vaccination rates have slowed in America. New Covid strains continue to emerge. Frequent extreme weather events continue to disrupt and impact large numbers of our population. Despite wanting to put the pandemic behind us and charge full steam ahead, it would be worth keeping an eye on the economic recovery and your investments. Plan and be disciplined about your asset allocation strategies. When you need to be defensive, cash can be your friend.
Mark Martiak is a New York based Investment Adviser Representative and Accredited Investment Fiduciary ® for AGP/Alliance Global Partners, a registered investment adviser and broker-dealer, Member FINRA | SIPC . Mark is a regular Contributor to VEGAS LEGAL MAGAZINE and has appeared on CNBC’s CLOSING BELL, YAHOO! FINANCE MIDDAY MARKET MOVERS, FOX BUSINESS NETWORK and has been quoted in THE WALL STREET JOURNAL.
Research done by Jennifer Gray, Associate. Such forward-looking statements are subject to significant business, economic and competitive uncertainties and actual results could be materially different. There are no guarantees associated with any forecast and the opinions stated here are subject to change at any time and are the opinion of the individual strategist. Data is taken from sources generally believed to be reliable, but no guarantee is given to its accuracy. Indexes are unmanaged, and investors are not able to invest directly into any index. Past performance is no guarantee of future results.
1 The IPO Market Has Never Been Hotter Than It Is Right Now, Bloomberg, Swetha Gopinath and Miriam Balezou, June 27, 2021
2 Americans Hunger for The Worlds Goods Drives Global Recovery, Wall Street Journal, Tom Fairless and Stella Yifan Xie, June 28, 2021
3 Economy Is Showing Sustained Progress, Powell Says, Wall Street Journal Paul Kiernan, June 21, 2021
4 Why the biggest global boom since World War II won’t be good for everyone, according to the World Bank, Business Insider, Ben Winck, June 8, 2021
5 Stock market news live updates: S&P and Nasdaq set record highs as traders await week of key economic data, yahoo!Finance, Erica McCormick, June 28, 2021
6 Capital-Spending Surge Further Lifts Economic Recovery, Wall Street Journal, Sarah Chaney Cambon, June 27, 2021
7 United States Economic Forecast, Deloitte Insights, Daniel Bachman, June 14, 2021