Weekly Market Update 02/16/2021
Some good news is starting to trickle in on the economy. Specifically, recent weeks have seen a pickup in vehicle demand, further uneven improvement in manufacturing activity, gains in the services sector, and a rise in exports. At the same time, job growth, average hourly wages, and the labor force participation rate are stuck in neutral, consumer spending is under pressure, and scattered supply chain issues exist. Taken together, these trends suggest that we have a ways to go before the economy is back up to speed. Indeed, this mixed backdrop implies that GDP, which grew by a listless 4.0% in last year’s concluding quarter, will grind forward in similarly undistinguished fashion in the current period.
A full recovery will take time. The main obstacle to a more significant comeback of economic growth in the backdrop an economy still badly damaged by COVID- 19 is the foundering job market. In fact, the winter pandemic surge kept significant hiring at bay, thereby making little further dent in the nearly 10 million jobs lost since the coronavirus struck. Fiscal stimulus and relief payments will help, as will the nascent decline in weekly jobless filings. That said, until most Americans are vaccinated, perhaps by the summer, it will be hard to get manufacturers and retailers to step up their hiring.
Wall Street, which looks ahead several quarters, still sees the glass as half full. It seems that the modest economic gains likely to be realized over the course of 2021 will be enough to keep investors wedded to stocks. Such loyalty should prevent a sharp selloff in equities barring erosion in the fundamentals.
There are risks in this investor approach. Our main concerns are the high price- earnings ratios in the stock market and limited visibility for significant long-term appreciation in so many stocks. Still,
Conclusion: There also are few alternatives to stocks at present given the low interest rates being paid on bonds of all maturities, even with the recent uptick in yields. That may change if inflation heats up. But such a pricing shift is unlikely for several years.