Is the 2021 Economic Recovery Overhyped?
17 March 2021 - 1:51AM
Finscreener.org
Many analysts and economists ask themselves if the market is
correctly pricing in a 2021 economic recovery or if waiting until
2022, or even 2023, is more realistic. Much optimism follows the
rollout of several vaccination programs aimed at curbing the global
spread of Covid and getting the worldU+02019s economy firing on all
cylinders again. But reports this week that at least one of the
vaccines, the Oxford-AstraZeneca variant, may cause blood clots led
12 European countries to suspend their vaccination programs
temporarily. If more suspensions follow in other countries,
economists may need to revise their current global economic growth
expectations.
The
BarronU+02019s cover story this week takes a look at the effect
of the Covid crisis on the US economy one year after it all
started. The article concludes that the US economy could recapture
its recessionary losses two quarters sooner than during the 2008
financial crisis. Despite a more considerable overall decline in US
Gross Domestic Product (GDP), a faster recovery could come thanks
in large part to the combination of trillions of dollars of fiscal
stimulus, ultralow interest rates, and an effective vaccination
program.
But the marketU+02019s concern is growing that the era of
ultralow interest rates is ending. For example, the yield on the
benchmark 10-Year Treasury note rose to 1.63% on Friday, a fresh
high since February of 2020, amid prospects of a strong US economic
recovery and renewed inflation concerns. At the same time, the
University of MichiganU+02019s US consumer sentiment jumped to 83
in March from 76.8 in February, beating market forecasts of 78.5.
The figure is the highest reading since March 2020, when Covid had
not yet materially reached the US.
Key Data This Week
This week the market gets some critical macroeconomic data,
including US Retail Sales for February on Tuesday and the
FedU+02019s Policy Rate decision on Wednesday. Economists presently
forecast a decrease in February monthly US retail sales of 0.6%.
January was solid with a 5.3% increase after three previous months
of declines and three months prior of weak growth. Economists put
JanuaryU+02019s strong growth down to new government stimulus
checks that helped to boost consumer spending. Retail sales growth
will need to show continued upward momentum for retail-related
stocks to deliver on analystsU+02019 2021 earnings
expectations.
Not Every Sector Recovers Equally
Reuters reported over the weekend that Carnival Corporation
(NYSE:
CCL) anticipates at least two more tough years of activity for
the cruise industry, which is unlikely to return to pre-pandemic
levels until at least 2023. Carnival in January 2021 reported a
bigger-than-expected preliminary fourth-quarter net loss of $2.02
per share vs. analyst expectations of a loss of $1.92, as the
companyU+02019s business was brought to a virtual standstill by the
Covid outbreak. (For more see,
Is Now the Time to Buy "Activity Stocks?").
US Not Only Recovering Economy
Media reports last week revealed that China is now taking the
global lead in moving to unwind its pandemic-driven economic
stimulus efforts as its economy recovers from the Covid crisis.
ChinaU+02019s policymakers have expressed concern about an
overheating housing market and want to prevent more significant
market imbalances. ChinaU+02019s economy recovered its pre-pandemic
momentum in 4Q20, primarily because of its success in containing
Covid-19 and strong exports.
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