top of page

Spring is Here Vitalizing the Economy/Markets




As the calendar turns to spring, most signs point to continued strong performance for US stocks. Hiring was strong in March and coronavirus vaccinations are being administered at the rate of about 3 million doses per day. The economy is expected to really heat up in the 2nd Quarter, perhaps to a level of 10% annualized growth. The head of the Federal Reserve Board has signaled the status quo for the foreseeable future regarding monetary stimulus. These positive factors favor continued equity funds gains. Therefore, we are maintaining our substantial participation.


But we’ve been around the block a time or two, and when everything seems to point one way it’s usually time to prepare for a period of correction and volatility. Don’t be surprised if we see a pullback and consolidation before the market makes its next pass at new highs.


Fed Chief Jerome Powell said a couple of weeks ago that parts of the economy and employment have “turned up.” The service sector is responding to increasing vaccinations and the concept of her immunity. Industries like restaurants, travel, and entertainment are finally starting to emerge from their Covid-induced slumber.


The numbers are reflecting this rising tide. The economy added 916,000 jobs in March, which blew away the estimate of 675,000. Consumer confidence jumped 19 points in March is its highest level of the pandemic era. Manufacturing is at its highest level since the Regan Administration. And pent-up demand may end up pushing the economy faster than what’s already showing in stock prices.


Ethan Harris, head of global economic research at Bank of America told CNBC recently that he expects 10% growth in the second quarter, 9% in the 3Q, and 5% in the 4Q. “The consumer is the big story. It’s not just the stimulus bills…. It’s the leftover stimulus money that’s accumulated in bank accounts,” said Harris. “It’s a big blank check for the consumers.”


Keep an eye out for corporate earnings reports too. First quarter estimates have been increasing steadily since early December and could be close to 20% higher year-over-year. Keep in mind the comparison includes the “pandemic hit” during the last month of 1Q 20.


These issues do increase the chances of more significant inflation than anticipated.T his increases the risk of some form of “taper tantrum” in the months ahead. That’s when investors agonize over when and how the Fed is going to reduce the pump priming. While we don’t expect it to be as bad a 2013, sometime in the latter half of 2021 it could likely become an issue.

Comentários


bottom of page