In today’s Steady
Investor, we focus on important factors that we believe are making an impact on
the market today, such as:
- Corporations
are sitting on record amounts of cash
- U.S. GDP
growth surges past China
- Concerns
of U.S. retail sales dip in July
Corporations are Sitting
on Record Amounts of Cash – U.S. corporations have by and large been
enjoying a strong 2021. Aggregate S&P 500 earnings are up close to 100%
from Q2 2020, and companies are outperforming revenue expectations at a strong
clip. Corporations are also sitting on a record amount of cash – data from Q2
2021 earnings reports shows a balance sheet with a record $6.84 trillion in
cash and short-term investments, which marks a 45% increase from the average
over the previous five years. At one point earlier in the year, many investors
bet that cash-rich corporations would increase spending on technological
upgrades, factories, and personnel as the vaccination rate moved higher and as
pandemic risks waned. There is still some evidence CEOs are planning to invest
cash – businesses like Tyson Foods, Morgan Stanley, and Constellation Brands
have made statements recently citing their desire to spend on expanding
research budgets, building factories, and boosting shareholder equity via share
buybacks and dividend payments. With the Delta variant spreading quickly, some
businesses appear – for now – to be pulling back slightly on their plans.1
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The U.S. Pulls Ahead
of China in Growth – The
U.S.’s GDP growth surge in Q2 outpaced China’s, and many economists expect the
U.S. to edge out the second-largest economy in growth for the next few quarters.
The U.S. expanded at a 12.2% pace in the second quarter compared to a year ago,
while China posted a 7.9% gain. If the U.S. continues to grow at a faster pace
than China for a few more quarters, it would be the first sustained period of
outperformance since the 1990s. A few factors are driving faster U.S. growth in
2021. For one, the U.S. has a relatively high vaccination rate and an economy
that largely has no economic restrictions related to the pandemic. In China,
however, low vaccination rates and the appearance of the Delta variant have led
the country to install drastic measures to stop the spread, in some cases
locking down completely. The U.S. also poured more fiscal and monetary
resources into the economic recovery than China did, which has played a role in
the sharp growth rebound experienced in the first half of 2021.3
U.S. Retail Sales Dip
in July. Cause for Concern? U.S. retail sales, which measure purchases at
stores, restaurants, and online, fell 1.1% in July compared to June levels. If
auto purchases are pulled from the figure – which has been a volatile category
in 2021 – then sales declined a more modest 0.4%. Restaurants and bars saw a
summer jump as consumers ventured back out, with sales rising 1.7% from June. The
data suggests that consumers continue to shift spending away from big-ticket
items and towards services, an expected outcome as restrictions fell away and
people re-engaged with the physical economy. Market watchers will be looking to
August numbers to measure if the economic impact of the Delta variant, which has
to date led to a sharp drop in consumer sentiment as measured by University of
Michigan data.4
These
recent events are a proven fact that life’s unknowns can throw your plans off
track.
- The effects of inflation could diminish the real value of your nest egg
- A stock market correction or crash may cause your net worth to plummet
- Changes in your personal situation—such as a health emergency—could have an enormous impact on your nest egg
For those
who are planning to retire soon, there are steps you can take to better prepare
yourself and protect your secure and comfortable retirement.
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Disclosure
1 Wall Street Journal. August 16, 2021. https://www.wsj.com/articles/companies-are-hoarding-record-cash-amid-delta-fears-11629106380?mod=searchresults_pos9&page=1
2 ZIM may amend or rescind the “Retirement Uncertainties…and How to Breeze Through Them” guide for any reason and at ZIM’s discretion.
3 Wall Street Journal. August 15, 2021. https://www.wsj.com/articles/u-s-economy-likely-to-outgrow-chinas-due-to-contrast-in-pandemic-responses-11629036000
4 Wall Street Journal. August 17, 2021. https://www.wsj.com/articles/us-economy-july-2021-retail-sales-delta-variant-11629153243
5 ZIM may amend or rescind the “Retirement Uncertainties…and How to Breeze Through Them” guide for any reason and at ZIM’s discretion.
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