As the U.S. continues to rebound from the pandemic to new heights, there are important factors to keep in mind. In today’s Steady Investor, we take a look at key factors that we believe are currently impacting the market, such as:
The U.S. Economy Grows to Pre-Pandemic Size, and Then Some – The U.S. economy posted another stout quarter of GDP growth in Q2, though the first estimate came in fairly far below expectations. The Bureau of Economic Analysis reports that the U.S. economy grew 6.5% in Q2, well below the 8.4% consensus estimates. This GDP growth puts the country back above its pre-pandemic size, and more growth is expected in the second half of the year. The expansion continues to be driven mostly by consumer spending, which rose at a firm 11.8% pace in the three months ending June 30 – the second-best performance since 1952. Consumers are still spending more on goods than services, but in recent months services started to catch up as Americans re-engage with the physical economy, i.e., with more travel, trips to salons, restaurants, and the like. Importantly, business investment was also a big contributor to growth in Q2, as businesses increased spending on technology upgrades, equipment, software, and R&D. The labor market is tight and wages are being pressured higher, which has arguably pushed businesses to invest more in technology and other means of boosting productivity. Even with the strong growth rebound, the U.S. economy is still about 2.4% smaller than it would have been (estimated) had the pandemic never happened. The labor market has not caught up to pre-pandemic levels, either – there are still 7 million fewer jobs today than before the pandemic. Other detractors from GDP growth in Q2 were inventories and trade. As consumer demand outstripped supply, businesses sold down inventories and struggled to bring more goods back online.1 On the trade front, since imports detract from GDP, the U.S.’s trade deficit pulled down growth in Q2.
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Everything You Need to Know About a Potential Bear Market!
Throughout the pandemic, we’ve seen the stock market plunge numerous times just to bounce back up. With so much volatility, many investors are worried another bear market is around the corner. That’s why there is no better time for investors to gain a better understanding of bear markets and how they work.
To help you understand market downturns and steps you can take to protect your assets during the next bear market, you’re invited to get our free guide – Everything You Need to Know About Bear Markets.2
If you have $500,000 or more to invest, get this helpful guide today. It walks through the history and types of bear markets, how investors typically react to extreme volatility, and what we can learn from the history of bear markets and pandemics.
Download – Everything You Need to Know About Bear Markets
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Is the Fed Tip-Toeing Closer to Monetary Tightening? Most readers are aware of the Federal Reserve’s extraordinary measures to stimulate the economy in the wake of the pandemic. Rates were lowered close to the zero bound almost immediately, and monthly Treasury and mortgage bond purchases to the tune of $120 billion have been ‘designed’ to further boost the economy. The jury is still out on whether these bond purchases actually work effectively, but that is another topic for another day. This week, the Fed’s meeting was as closely watched as any, as market watchers were looking for even the slightest hint that the Fed would start to back off its stimulative measures/programs. And they got a strong hint: the Fed said “the economy has made strong progress” towards the goals set early in the pandemic, which could be an indication that the bond purchases can be wound down. In our view, this Fed action would be a good thing – bond purchases have the effect of holding down the long-end of the yield curve, keeping it relatively flat. A steeper yield curve is better for the economy, in our view, as it gives way to a more profitable environment for bank lending. As for raising short-term interest rates (Fed funds), don’t count on it – Federal Reserve Chairman Jerome Powell said there are no plans for rate increases anytime soon.3
Economically Adapting to Covid-19 and Its Mutations – News of rising cases of the Delta variant is increasing around the world, but in Western countries, each successive wave has been causing less and less economic damage. Vaccines have been a key factor in avoiding the most deleterious of economic impacts, as Western countries have relatively high vaccination rates and have not needed to resume lockdowns, as we’re seeing in countries like Australia, Vietnam, and Indonesia. But improving economic outcomes with each new surge of cases is also tied to businesses and governments adapting to doing business and living with the pandemic. Businesses have developed new protocols for keeping workers safe, including distancing and spacing out worker shifts, and allowing for more remote work capabilities. Some are taking even more drastic measures as we saw at Facebook and Google this week, where vaccinations would be required to return to campuses. All this to say, the threat of another economic lockdown – and associated recession – appear low even as new cases rise.4
Prepare for Potential Downturns – If the pandemic has taught investors anything, it is just how quickly the stock market can change, and how critical it is for investors to know how bear and bull markets work.
To help you understand market downturns and steps you can take to protect your assets during the next bear market, you’re invited to get our free guide – Everything You Need to Know About Bear Markets.5
If you have $500,000 or more to invest, get this helpful guide today. It walks through the history and types of bear markets, how investors typically react to extreme volatility, and what we can learn from the history of bear markets and pandemics.
Disclosure