Let us endeavor so to live so that when we come to die even the undertaker will be sorry. -- Mark Twain
Undoubtedly the Covid-19 pandemic turned our world upside down … it disrupted our routines, forced us to stay home, separated us from our loved ones and raised fear and anxiety for more than a year. And many of us may need time to get comfortable with being back to “normal.” As we transition from a state of constant uncertainty and unease to a journey back to truly living, it is our hope that you will not only enjoy life’s pleasures at pre-pandemic levels but take what you’ve learned from this crazy time and experience life at an even greater level – live bigger, love stronger and laugh harder than ever before.
As the economy continued to reopen, the second quarter of 2021 experienced continued growth fueled by vaccination progress, supportive monetary policy, fiscal stimulus, and strong corporate earnings. After more than a year of pandemic-related restrictions, businesses are ramping up and consumers are ready to spend.
Wall Street’s optimism with the economic recovery, evidenced by the market reaching all-time highs during Q2, is expected to continue, as investor confidence remains high. The S&P rounded out Q2 with five consecutive days of record highs, reaching its 34th record high this year (seriously!!). And by the end of 2021, household demand for equities is expected to reach a record $400 billion, according to a recent Goldman Sachs report.
And corporate America shares this optimism … CEO confidence reached its highest level since The Conference Board began keeping track in 1976, with 88% of CEOs expecting economic conditions to improve over the next six months. And large companies’ plans for hiring, spending and sales projections increased during the second quarter to a level just below 2018’s record high, according to a recent survey.
Economic indicators continue to improve, with most having bounced back to pre-pandemic levels. Continuing 2021’s dramatic vaccine-driven rebound, the GDP grew 8% in the second quarter. Unemployment claims reached the lowest level since March of 2020. While still higher than pre-Covid’s 3.5% (the lowest in 50 years), we expect continued decreases as the economic recovery progresses and supplemental unemployment benefits are discontinued. Pending home sales increased 8% in May, reaching a high not seen since 2005, with home prices experiencing the largest annual increase in more than two decades.
Amidst a resurgence in Covid cases, increased inflation worries and supply constraints, we do anticipate some headwinds in the second half of 2021. And long-range we continue to have concerns regarding the dramatically increasing deficit. (Already historically large before pandemic-related stimulus spending, it’s about to see another growth spurt. The Congressional Budget Office reports a budgetary shortfall for 2021 equal to 13.4% of the GDP, the second-largest level since 1945, exceeded only by 2020 spending.) All that said, in the short-term we expect continued growth, albeit at a more moderate rate in the second half of the year.
We continue to focus on fundamentals and adhere to a disciplined, long-term investment strategy. Your peace of mind remains paramount, and we welcome your questions and comments.
Recent Economic Data:
Gross Domestic Product (GDP). The GDPNow model’s latest estimate (July 9, 2021) for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2021 is 7.9%., an increase from 6.4% in Q1 2021.
Unemployment. The June unemployment rate was 5.9%, little changed from 6.0% in March.
Consumer Confidence. The Conference Board Consumer Confidence Index, an indication of consumer attitudes and buying intentions, continued to improve in June, and now stands at 127.3, up from 109.7 in March 2021 (1985=100), and is approaching the pre-pandemic rate of 132.6 posted in February 2020.
Consumer Price Index (CPI). The CPI for All Urban Consumers (CPI-U), a measure of inflation which shows “cost of living” fluctuations, rose 0.9% in June, on a seasonally adjusted basis, after rising 0.6% in May. For 12 months ending June, the CPI-U increased 5.4% before seasonal adjustments, the largest 12-month increase since the period ending August 2008; however, much of the increase is likely temporary, related to supply issues and post-opening consumer demand.
Earnings. For Q2 2021, the estimated earnings growth rate for the S&P is 64.0%, which would mark the highest year-over-year earnings growth rate reported by the index since Q4 2009.
Housing. Privately-owned housing starts in May were 3.6% above the revised April estimate, and pending home sales unexpectedly jumped 8% in May (analysts were expecting a 1% decline.)
June 30, 2021
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Executive Summary Sources:
The views expressed represent the opinion of Asset Management Financial Solutions, Inc. (“AMFS”) and are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and AMFS’s view as of the time of these statements. Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties.