In this latest installment of our quarterly newsletter, we share our observations on the second quarter of 2021 and our outlook for the remainder of the year. Click here to go to the full report on our website. Following are highlights:
- The U.S. economy and financial markets accelerated their recovery in the second quarter of 2021 from the Covid-19 pandemic that kept Americans and the world in its grip for more than 15 months.
- Several factors have contributed to the robust recovery. First, increasing vaccination rates in most parts of the U.S. have led to the easing of pandemic-related restrictions, which in turn have boosted economic activity and consumer spending. Second, the Federal Reserve has remained committed to low interest rates and accommodative monetary policies, spurring everything from home purchases to corporate investment. Finally, government stimulus appears to be continuing with a bipartisan infrastructure spending program likely to pass in Congress.
- The pace of the economic recovery has been faster and stronger than expected, with the Fed revising its estimates for 2021 GDP growth upward from 4.2% in December to 6.4% in March and to 7% by mid-June. Some economists are even more bullish, predicting that GDP could grow at an annualized rate of 8% – 9% this year.
- The strong uptick in economic activity has led to a robust rebound in corporate earnings, which increased 143% in the first quarter of 2021 from the pandemic low-point of the first quarter of 2020 and are expected to top 65% year-over-year growth in the second quarter.
- All of these factors have fueled stock market gains of 15.3% for the S&P 500 year-to-date through June 30th, with most stock indices reaching record highs at the end of the quarter.
- The employment picture has also brightened in 2021. After a blockbuster employment report in March, job growth slowed in April but recovered in May and June, sending the unemployment rate down to 5.9%. However, in a frustrating twist to employers, job postings are at record levels even as nine million Americans remain unemployed, meaning many businesses can’t fill the positions they need to return to full capacity.
- As the U.S. economy comes back from the depths of the pandemic, many investors now see inflation as the next serious risk to the economy and markets. Stoking this fear, consumer prices rose at an annualized rate of 5.4% in June, marking a 13-year high.
- However, the Fed has remarked that the current burst of inflation, seen especially in rising commodity, energy, and other raw material prices, is likely to be transitory, lasting only until global supply chains recover and the supply/demand relationship for most goods and services comes more into balance.
- Fears of inflation have also put the spotlight on interest rates; specifically, how and when the Fed might respond by raising rates and curtailing asset purchases. Given its view that current inflationary pressures are transitory, the Fed has not indicated any material change to its monetary policy, meaning that it does not expect any rate hikes to be needed until 2023.
- We remain optimistic that the U.S. economy and financial markets will continue their positive trajectory through 2021 and into 2022 as businesses and consumers continue to recover from the Coronavirus pandemic. Overall, the combination of pent-up consumer demand, supportive monetary and fiscal policies, improving business and consumer confidence, and reopening momentum provide a favorable backdrop for continued growth in the U.S. economy and financial markets.
- We do not anticipate major changes to our portfolios as a result of current trends. We continue to hold and to look for attractively priced investments that might benefit from infrastructure spending and the broader economic recovery, which have the potential to boost value stocks, in particular. Rising interest rates do not concern us now, but we will be keeping a close eye on yields and signs of an uptick in inflation.
- We are pleased to announce that Edgemoor’s office has fully re-opened as of June 1st, 2021.
The Edgemoor Team
