As we survey the U.S. economy, we see pandemic-induced pain that, did we not know better, could easily obscure the renaissance we foresee later this year. The labor market remains severely impaired, with the total number of Americans holding down full-time jobs 7% from the preCOVID-19 peak. Small businesses continue to shutter at historic rates. Interest rates have spiked higher. And consumer savings has reached record levels while the spending rebound has stalled. Despite all this, we believe we are marching toward an economic inflection of historic scale driven by a consumer shift from goods to services as the scourge begins to lift.
Given this positive outlook, we see near-term, rate-driven volatility in equity markets as a buying opportunity over a nine- to twelve-month investment horizon. Indeed, we have added additional risk to portfolios, rotating out of cash, investment-grade bonds, and liquid alternatives into high-yield bonds, commodities, and equities.
Prepare for liftoff
Collapsing COVID case counts, accelerating vaccine distribution, outsized consumer savings, massive fiscal stimulus, and easy monetary policy are coalescing to turbocharge U.S. economic growth in the second half of 2021. We may be on the cusp of GDP growth rates not seen since the mid-1980s. Just how strong economic growth is in the U.S. this year depends on exactly how these factors play out.
COVID daily case growth has declined 55% over the last four weeks in the U.S. (Figure 1a), and we expect immunizations to ramp up from the current pace of 1.7 million people per day (Figure 1b). The latest round of fiscal stimulus appears poised to deliver at least another $1.5 trillion of support to consumers, businesses, municipalities, and communities. Various members of the Federal Reserve, including Chair Powell, have exhausted the different ways of communicating the same thing: The Fed will not be tightening monetary policy any time soon.
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