8/19/2021
The Global Economy is Recovering
In the first half of 2021, the global economy appears to have rebounded back above its pre-pandemic level, marking the start of a new economic expansion. Many countries, businesses, and families have not fully recovered from the pandemic. Nevertheless, overall global growth (GDP) fully recovered by the end of the first quarter and continued economic expansion in the second quarter of 2021 is likely to lift total GDP above its pre-pandemic peak.
This sequence reflects a pronounced “V-shaped recovery” with a sharp decline and rapid recovery both contained within a relatively short period of time.
Global Q1 estimate based on official reports for many countries.
Source: Charles Schwab, World Bank data as of 5/27/2021.
Given the economy’s rapid recovery, the U.S. central bank appears to be increasingly likely to begin tapering its massive stimulus activities even as the Delta variant is weighing on the economy. The unpredictability of future mutations is likely to inhibit short-term economic success and influence policy making going forward.
Inflation – Transitory
Inflation is rising consistent with the rebound in economic activity, wages, and corporate earnings, not to mention temporary conditions such as supply-chain constraints, microchip shortages, and other factors.
As businesses, schools, and social institutions fully reopen, we expect raw material shortages, supplier delivery times, and the supply of labor to improve. This could lead to an easing of inflationary pressures.
In a recent interview, Liz Ann Sonders of Charles Schwab expressed her view that for now, inflation looks transitory. However, unmet demand for labor holds the key to whether it becomes longer lasting.
Click here to access Charles Schwab’s Market Perspectives.
Similarly,Eric Sussman of Clear Capital, LLC, has mused that “as long as Costco continues to charge only $1.50 for a hot dog and drink, inflation is not a longer-term systemic problem.”
Click here to access Clear Capital’s latest real estate and economic outlook.
While impossible to predict, the consensus amongst many in the investment community is long-term inflation expectations are likely to settle within most central banks’ comfort zones.
California Dreaming
In a recent publication, Economists at UCLA forecast that California’s economy is likely to recover from the pandemic at a faster rate than the overall U.S. economy, thereby demonstrating the diversity and strength of the State’s economy.
According to economist Jerry Nickelsburg, director of UCLA Anderson Forecast, “California will grow faster than the U.S. [economy]. The strength of the technology industries, the strength of the entertainment industry, the strength of the logistics industry, all of those look to be the growth sectors in the next decade. And California’s economy is disproportionate in those sectors.
Click here to access’ UCLA’s latest economic forecast.
Corporate Earnings in Focus – Apple & Disney
APPLE: Apple’s run of record-breaking earnings reports continues with Apple posting strong quarterly fiscal Q3 revenue, profit, and strengthening fundamentals.
According to Luca Maestri, Apple’s CFO, operating results in the most recent quarterly report published 7/27/21 included new revenue records in each of Apple’s geographic segments, double-digit growth in each product category, and a new all-time high for Apple’s installed base of active devices.
Click here to access Apple’s latest earnings summary.
DISNEY: Despite the enduring challenges of the pandemic, particularly to the Travel & Entertainment segments of the economy, Disney posted improving business fundamentals with its U.S. theme-parks fully reopening and returning to profit alongside continued growth in its direct-to-consumer business – most notably Disney+.
In their latest quarterly earnings call, Disney CFO Christine McCarthy announced the company’s aim is to have their U.S. parks “be fully staffed up by the end of this calendar year,” and said the company would increase theme park capacity in an aggressive but measured way, noting the company is being cautious given the unpredictable Covid environment.
Click here to access Disney’s latest earnings summary.
Takeaways
- The global economy is fundamentally strong and has largely rebounded following a steep short-term decline in GDP.
- Inflationary factors exist but Inflation overall may prove to be transitory in nature.
- While equity and real estate valuations appear stretched across the board, the number of firms reporting improved earnings and strong fundamentals may quell worries for now about Covid-19 related risks.
What is your level of optimism for the rest of 2021? Contact us to review your current plan and update your family’s long-term growth strategy.
Sources:
Vanguard: https://advisors.vanguard.com/iwe/pdf/FAVEMOBF.pdf
Clear Capital: https://www.clearcapllc.com/q2-2021-clear-capital-newsletter/
Charles Schwab: https://www.youtube.com/watch?v=8yfvYqe3zLs
UCLA Anderson Forecast: https://www.anderson.ucla.edu/sites/default/files/document/2021-07/UCLA_Economic_Letter_No_California_Exodus_07.09.21.pdf
Apple Investor Relations: https://www.apple.com/newsroom/2021/07/apple-reports-third-quarter-results/
Disney Investor Relations: https://thewaltdisneycompany.com/investor-relations/