KEY THOUGHTS

  • The S&P 500 finished 1Q21 at a new all-time high (+6% YTD), but performance masks the volatility under the surface.
  • Inflationary concerns are moving yields higher, weighing on growth stocks and causing investors to question the Fed’s course of action.
  • GDP estimates in the US are being revised higher as pent-up consumer demand, warm weather, stimulus checks and vaccinations become a catalyst for a spending uptick.
  • Unemployment continues to trend lower, and in states that have “reopened” unemployment is approaching pre-COVID levels.

Massive fiscal stimulus helped stem off a global depression, but investors are now realizing there are consequences (e.g. higher taxes).

The S&P 500 is up nearly 80% since March 23, 2020 (the COVID beak market bottom). The economic recovery is in full swing, and between stimulus checks, warm weather, and widespread vaccinations recovery momentum is likely to surge this summer; especially if the labor market recovery accelerates given reopening states and an uptick in services sector spending. In conjunction, we think markets should continue to push higher, although downside volatility is intensifying as headwinds from rising rates and the long-term consequences of stimulus (e.g. higher taxes) become more prevalent. We continue to see opportunity in risk assets near-term, but suggest taking a more balanced equity approach going forward, especially given the recent rotation from growth to value.

TO THE POINT

Summer spending surge will boost the economy but then what?

After one of the most volatile years in markets and the global economy the world is (finally) re-opening. The S&P 500 is up nearly 80% since its March 23, 2020 low and is off to another strong start in 2021 (up 6%). This summer the combination of warmer weather, stimulus checks and widespread vaccinations are likely to act as a catalyst for a surge in consumer spending, both for goods and services. And with this pick-up in activity we think labor market improvement will accelerate as services-sector businesses look to ramp-up hiring (See Exhibit 6).