The economic dam is bursting and the economy is booming. Demand in the US was described as “very, very strong” and “phenomenal” thanks to strong consumer balance sheets and vaccinations. Supply chains are still disrupted and there are significant inflation pressures.
Markets went haywire last week thanks (so the story goes) to some retail traders in a Reddit forum led by a man named Roaring Kitty. It was hard to pay attention to much of anything else in capital markets, but it was also a busy week for earnings. Industrial companies said that demand was “very, very, very strong” and there was an abundance of commentary on price pressures. Jerome Powell isn’t worried though. Game on!
Succinct Summary: The decline in economic activity has been huge and the recovery may take longer than expected. However, bulls are betting on massive stimulus in an environment that was already highly liquid prior to the Covid crisis. Consumers are itching to get back to normal and some hard hit industries are seeing stabilizing trends. But the economy is subject to the machinations of non-economic forces: governments and a poorly understood disease.
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Succinct Summary: The modern economy has never experienced economic carnage on the scale of COVID19. US GDP is forecast to fall by 30-40% while unemployment is likely to rise to 20-30%. What matters though, is how long it lasts. A 30% rate of decline in production for a quarter is different from a 30% decline for a whole year. As public attention seems to turn from the virus to the economy, debate is on whether we will see a V-shaped recovery or not. There are lots of reasons why we are unlikely to see such a rapid recovery but there are also glimmers of economic hope. Still, the path of the economy seems to pale in comparison to the importance of the path of humanity.
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Succinct Summary: It’s hard not to be happy about the economy. The consumer is strong and business sentiment has turned positive. Recession fears have abated thanks to the actions of central banks and a trade truce with China. Markets are feeling optimistic.
Succinct Summary: The consumer is strong but manufacturing is weak. Everyone is tired of Brexit and tech IPOs probably still have a path to market as long as they have a path to profitability.