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!
The Year in Review: 2020 was an unprecedented year and The Transcript covered the economy throughout all of its twists and turns. Even though China was battling Covid in 2019, no one really knew what was in store for all of us in 2020. Technology, capital markets, and housing were three industries that boomed. While the stimulus was integral, the economic hero of 2020 was the US consumer. Optimism is high that 2021 will be a more normal year.
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Succinct Summary: Capital markets are ending 2020 with a bang thanks in part to last week’s hot IPOs. Business leaders are feeling confident about 2021 and expect next year’s earnings to exceed 2019’s. Consumer spending is similarly strong. Even the housing market is stronger than in ’05. It’s a K shaped recovery for some industries but a vaccine should unleash pent up demand and high unemployment means that interest rates will stay low for longer. Readers should keep an eye on growing supply chain bottlenecks. This could be a source of some inflationary pressure.
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Succinct Summary: This has been the most difficult crisis that the US has faced since most people can remember. An economic recovery is underway but the pace of job growth may be slowing. Companies in the hardest-hit industries are asking for more stimulus.
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Succinct Summary: The economy has improved a lot since the bottom, and headline economic activity is nearing a full recovery. However, the recovery has not been shared equally. There have been a small number of big economic winners and a much larger number of economic losers from COVID. This will help keep the government pushing for more stimulus for a long time. In the past, this stimulus has tended to help the winners even more.
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Succinct Summary: The economy was rebounding in May and June, but the recovery seems to have stalled out as infections have rebounded. CEO commentary was particularly negative last week. Business leaders are rapidly losing confidence and do not see a V-shaped recovery materializing. There’s a sense that government stimulus appears to be the only thing propping up the economy and it’s creating distortions in unemployment and financial markets. Still (perhaps because of this stimulus) the hot housing market suggests that consumers may not actually be in such bad shape after all–just spending on different things.
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Succinct Summary: The year got off to a strong start. There’s a high level of optimism which has helped fuel industries that rely on long term confidence like M&A and construction. Can the Coronavirus halt the economy’s momentum? Seems unlikely.
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.