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Friday, April 23, 2021
While as some strategists warn of 'peak growth'
The U.S. economic recovery continues.
On Thursday, the latest weekly data on initial jobless claims fell to another pandemic-era low of 547,000. This data beat Wall Street expectations and marked another improvement in what has been to this point the most stubbornly negative economic data point during the crisis.
And when looking at broad signals on the state of the U.S. economy, we continue to see data improving. Even as some strategists warn of "peak growth" and a more challenging time ahead for investors.
Oxford Economics has followed the recovery for over a year now with a proprietary U.S. Recovery Tracker, which this week registered its highest reading since March 2020. Last March, of course, this data was already in decline and wouldn't bottom out for another several weeks.
"The US Recovery Tracker rose 1.3 ppts to 90.2 in the week ended April 9, its first reading above 90 since March 2020 and its seventh consecutive weekly gain," the firm said in a note published Thursday.
"Progress was broad-based despite a slight worsening of health conditions as improving economic activity and rising vaccinations offset the climb in cases. Positive vaccine developments indicate the pandemic should remain contained. All states have expanded eligibility, more than 200 mn doses have been administered, and over half of all adults have received at least one dose."
The firm added that, "The economy is in the early stages of a mini-boom, fueled by vaccines, generous fiscal stimulus, and improving consumer and business confidence."
This report from Oxford comes at the same time, however, that we see strategists on Wall Street warn of peak growth and the potentially read-through for stocks.
Earlier this month, we highlighted work from teams at both Deutsche Bank and Goldman Sachs who noted that elevated activity readings can be potentially troubling signals about stock market returns in the subsequent three- and six-month periods.
And strategists at Goldman Sachs again flagged this dynamic in a note published Wednesday, writing that, "US economic growth is peaking... Although our economists expect US GDP growth will remain both above trend and above consensus forecasts through the next few quarters, they believe the pace of growth will peak within the next 1-2 months as the tailwinds from fiscal stimulus and economic reopening reach their maximum impact and then begin to fade."
And reiterated that beginning of an economic deceleration — even from the strong levels we're likely to see in the second and third quarter of this year — can pose a challenge for investors.
Which serves as the latest way to sum up the last year's worth of market action: it isn't what the economy or earnings are doing now that investors care about, it's whether the trend is getting better or getting worse.
So while some readings indicate the economy is still growing stronger, our days of relentless improvement do appear numbered.
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