Monthly Markets Memo - April 26, 2021
by Dan Zalipski, CFA
March retail sales surged 9.8% compared to the prior month, easily beating forecasts that averaged 6.1%. The upside surprise is attributed to the stimulus cash consumers received earlier in the year. In addition, the weekly jobless claims for the week ending April 10th dipped below 600,000 for the first time since the pandemic’s onset. Delta Airlines announced that bookings in March had doubled compared to January. With the vaccinated population increasing every day, the U.S. is eager to see an end to the social distancing recession, followed by an impressive restart of the service-sector businesses, leisure, and travel. The months ahead will clarify the extent of the recovery, what it may mean for ongoing fiscal support, and the potential impacts on the markets.
Investors are looking at the vaccination campaign as another form of stimulus. Daily average cases are plummeting as vaccine distribution continues to accelerate. As of right now, any adult over the age of 16 in the US is eligible for the vaccine, and more than half of U.S. adults have gotten at least one vaccine shot. This naturally leads to the topic of herd immunity as a potential signal that this is truly behind us. With the current count and pace of inoculations, improved testing capabilities, and therapeutics, combined with the number of people who have already had the virus, a potential path allowing life to largely return to normal appears possible within the year.
As the recovery continues, the lost jobs should begin to emerge. Unemployment has already retreated to 6% as the job market continues to improve. Despite that improvement, the U.S. is still down about 8.5 million jobs due to the pandemic. As the recovery progresses, and activity increases, job growth is expected to accelerate. Some analysts believe we will see a couple of monthly job reports north of one million new jobs in the coming month. A million new jobs a month may sound like a lot, but it is not that far of a stretch when you consider that the new job report for March came in at 916k new jobs. There are some concerns on the labor supply side with some industries expressing difficulty in finding labor. Some say they are still fearful of catching Covid in returning to the workplace, and that is keeping them on the sidelines. That group should begin to shrink as vaccination efforts continue. Another likely source of the labor shortage is disincentivized workers living off enhanced unemployment benefits. As of now, it appears to be a temporary problem as those enhanced benefits expire at the beginning of September, likely forcing more people into the labor pool.
The market continues to focus on the Federal Reserve’s extremely accommodative policies and when they may change. Even though the Fed will likely refrain from withdrawing policy support until the economy is on stronger footing, investors will interpret a reduction in accommodative policy as a negative for the market. This is especially true if that policy change includes increasing interest rates. Higher rates translate into higher borrowing costs for corporations and consumers, a move that could potentially reduce economic activity. Fortunately, the one thing the Fed does not want to do is catch anyone off guard. They are being extremely deliberate with their messaging in laying out their plans as the recovery continues. As of now, the Fed believes rates will remain unchanged through 2023.
“We and a lot of private-sector forecasters see strong growth and strong job creation starting right now. Really, the outlook has brightened substantially.” - Jerome Powell, Chairperson of the Federal Reserve
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