{"id":9779,"date":"2021-08-16T16:11:19","date_gmt":"2021-08-16T16:11:19","guid":{"rendered":"https:\/\/zackspcg.com\/blog\/?p=9779"},"modified":"2022-02-26T13:05:37","modified_gmt":"2022-02-26T13:05:37","slug":"economic-growth-is-peaking-what-happens-next","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/economic-growth-is-peaking-what-happens-next\/","title":{"rendered":"Economic Growth is Peaking&#8230;What Happens Next?"},"content":{"rendered":"\n<p>According to the Bureau of Economic Analysis, the U.S.\neconomy grew at an annualized rate of 6.5% in the second quarter. Many areas of\nthe economy are still in recovery mode, but for all intents and purposes, the\nU.S. economy is back to its pre-pandemic size \u2013 and we see plenty of runway for\ngrowth ahead.<\/p>\n\n\n\n<p>The surge of activity in the first half of 2021 was largely\nexpected and has been great for many households and businesses. Consumer\nspending persists as the lead driver of the expansion, with spending up 11.8%\nin the three months ending June 30\u2014the second-best performance since 1952.\nBusiness investment also rose 8%, adding 1.1% to the total GDP number. <\/p>\n\n\n\n<p>The drag on U.S. economic growth in the second quarter came\nfrom inventory drawdowns, which subtracted 1.1% from GDP, rising imports, and a\ndecrease in federal government spending. According to the Bureau of Economic\nAnalysis, nondefense spending on intermediate goods and services fell the most,\nlargely due to a drop-off in Paycheck Protection Program (PPP) loans.<sup>1<\/sup><\/p>\n\n\n\n<p>__________________________________________________________________________<\/p>\n\n\n\n<p><strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2021_08_16&amp;content=stock_market_outlook_report \">Have the Economy &amp; Stock Market Returns Peaked?<\/a><\/strong><\/p>\n\n\n\n<p>We are currently witnessing an economic boom right after an\nextreme collapse due to the 2020 pandemic. But what does this mean for the\nfuture? Have stock market returns peaked or is another downturn around the\ncorner? <\/p>\n\n\n\n<p>Get answers to these questions and more with our\njust-released Stock Market Outlook report. This report contains some of our key\nforecasts to consider such as:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><em>Zacks April and May view on equity markets<\/em><\/li><li><em>A look at the Covid-19 vaccine tracker update<\/em><\/li><li><em>A look at U.S. returns expectations for\n2021&nbsp;<\/em><\/li><li><em>Zacks Rank S&amp;P 500 Sector Picks<\/em><\/li><li><em>What produces 2021 optimism?<\/em><\/li><li><em>Sell-side and buy-side consensus<\/em><\/li><li><em>And much more<\/em><\/li><\/ul>\n\n\n\n<p>If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!\u00a0<br> <strong><br>IT\u2019S FREE.\u00a0<a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2021_08_16&amp;content=stock_market_outlook_report \">Download the Just-Released August 2021 Stock Market Outlook<\/a><sup>2<\/sup><\/strong><\/p>\n\n\n\n<p>__________________________________________________________________________<\/p>\n\n\n\n<p>The return to growth has been welcomed and also positive for\nthe equity markets, in my view. But based on our forecasts here at Zacks\nInvestment Management, the 6.5% Q2 growth rate is likely to be the fastest the U.S.\neconomy will deliver in this cycle. Meaning, we may have just seen \u2018peak\ngrowth\u2019 in the economy, with spending and GDP expansion set to slow from here.\nThe effect of stimulus payments is fading, there is a low likelihood of another\nround of direct transfers (fiscal stimulus), and the U.S. economy looks poised\nto settle into a more modest, sustainable rate of growth:<\/p>\n\n\n\n<p><strong>Federal Reserve GDP\nGrowth Estimates 2021 \u2013 2023 (Median)<\/strong><\/p>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2022\/02\/5_pic1-2-1024x395.png\" alt=\"\" class=\"wp-image-9780\"\/><figcaption> <em>Source: Federal Reserve Bank of St. Louis<sup>3<\/sup><\/em> <\/figcaption><\/figure>\n\n\n\n<p>The moderating pace of GDP growth has some investors worried.\nIf the economy has peaked, does it mean stock returns may have peaked, too? <\/p>\n\n\n\n<p>I think the answer is no \u2013 and history suggests it is, too.\nTake the period from 1995 to 1999, for example. Most readers remember this as a\nperiod of high-flying growth, thanks to the blooming age of the internet. Over\nthose four years, the U.S. economy was averaging over 4% GDP growth \u2013 quite\nstrong. The weakest growth year in that period was 1995 when the U.S. economy\n\u2018only\u2019 expanded 2.7%. But the weakest GDP growth year also delivered the\nstrongest year for stock returns, with the S&amp;P 500 rising over +35%. The\nstock market may have been discounting the strong growth years that would\nfollow, granted, but who is to say 2022 and 2023 will not be\nbetter-than-expected growth years?<\/p>\n\n\n\n<p>One more example to offer some additional context. From 2009\nto 2019, the U.S. economy averaged just 1.9% of GDP growth, which was about\nhalf the growth rate it averaged over the previous 20 years. Historically\nspeaking, this was considered weak growth. But there was not a noticeably\nadverse impact for S&amp;P 500 returns\u2014from 2009 to 2019, the index rose +351%!<sup>4<\/sup>\nThe third-weakest year in the stretch, 2013, was also the best year for stocks\nin that bull market.&nbsp; <\/p>\n\n\n\n<p><strong>Bottom Line for\nInvestors<\/strong><\/p>\n\n\n\n<p>The U.S. economy likely peaked in Q2 2021, and growth is\npoised to slow from here, in my view. But that does not necessarily spell doom\nfor the U.S. economy or the stock market. Just because growth is slowing does\nnot mean it\u2019s stopping or reversing. As I look out at corporate earnings\nestimates, household and corporate balance sheets, business investment, and\nmonetary policy (among other economic fundamentals), I see positive dynamics\nand a positive outlook.<\/p>\n\n\n\n<p>I have written before in this column that \u2018growth is\ngrowth,\u2019 even if it is slowing down from a peak or moderating over time. But I\nthink it is also important to note that consensus has U.S. economic growth\nslowing from here, meaning that growth <em>expectations\n<\/em>are also falling. In my view, that\u2019s good news for stocks \u2013 if growth\nexpectations fall quickly, it means positive surprises are more possible, which\nI think is a key driver of returns. <\/p>\n\n\n\n<p>To be prepared for any market outcome, I recommend keeping an eye on key economic data releases, earnings reports, and other key economic factors. Our\u00a0<strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2021_08_16&amp;content=stock_market_outlook_report \">Just-Released August 2021 Stock Market Outlook Report<\/a><sup>5<\/sup>,<\/strong> will give you insight into all of it!<br> \u00a0<br>This report is packed with newly revised predictions that can help you base your next investment move on hard data. For example, you&#8217;ll discover Zacks\u2019 view on:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><em>Zacks\nrank S&amp;P 500 sector picks<\/em><\/li><li><em>Zacks\nview on equity markets<\/em><\/li><li><em>What\nproduces 2021 optimism?<\/em><\/li><li><em>An\nupdate on the outlook for Covid-19<\/em><\/li><li><em>Top\nstocks in top industries<\/em><\/li><li><em>Sell-side\nand buy-side consensus<\/em><\/li><li><em>And\nmuch more<\/em><\/li><\/ul>\n\n\n\n<p>If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!<br><\/p>\n","protected":false},"excerpt":{"rendered":"<p>We likely saw peak economic growth in Q2 &#8230; but that doesn&#8217;t have to spell doom for the market and economy.<\/p>\n","protected":false},"author":3,"featured_media":8874,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[63,71],"tags":[],"class_list":["post-9779","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mitch-on-the-markets","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9779","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=9779"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9779\/revisions"}],"predecessor-version":[{"id":10335,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9779\/revisions\/10335"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=9779"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=9779"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=9779"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}