We managed to see latest "Fast and Furious" series movie - F9 in theaters (and couple of other movies like "In the Heights" and "Quiet Place 2"). F9 was way over the top even for the series with rockets blasting car in space and so on...but that's the fun part of enjoying complete non-sense action movie or musicals on big screen. Last week we enjoyed the natural wonders at Yellowstone and Grand Teton National Parks. The planes, hotels, restaurants and even parks were full. Despite the crowds, it felt good to see life returning to normalcy.
Economic recovery as well as stock market recovery since reaching bottom 15-16 months back has been Fast and Furious. Government and central banks acted fast to support the economy and citizens who were unemployed for no fault of theirs. With nearly $10T support with stimulus and Fed bond buying, employment situation is improving drastically along with economy. This has resulted in spectacular recovery in stock markets with most major indexes up by more than 50% since reaching bottom. Last week all three major indexes (DOW, S&P and Nasdaq) reached all time highs. 5 big tech stocks have over trillion $ valuations each (Apple/Microsoft well above 2T valuations).
But as we peek into 2022, many factors which made this recovery as one of the best economic recovery would start wearing out. Stimulus as well as unemployment benefits would start phasing out in 2H2021. Fed has started talking about reducing bond buying and potential interest rate hikes in late 22 or early 23. While Infrastructure bill would provide some boost, there are no more stimulus checks coming in the mail. Supply chain issues are causing imbalances across the board from cars, phones to toys, So while rest of summer and holiday season should play out well, economy may start looking fragile in 2022. Next week starts the earnings season. This would be one of the best earnings season on record due to easy compares (Q2CY20 was lowest earnings during pandemic) as well as unexpectedly fast recovery. What does it mean to markets which are already at all time highs? Since markets are predictor of 6-12 months in advance, we will see some worries about 2022 creep up which would cause churn in the markets. While I don't expect 10-20% correction, 5-10% correction could be possible (and maybe healthy for long-run). S&P is already up by more than 16% in first 7 months. Maybe it would cross 4400/4500 but it would remain sideways for next few months and potentially end the year around 4300-4500.
US recovery and market action has been the best due to extraordinary steps government and Fed took. Not all countries including EU/Japan took similar steps. So overall economic recovery across the world has been more fragile compared to US.
This week also happens to be peak season for many sporting events with Copa America final, Euro Final, NBA finals, Wimbeldon finals, Stanley Cup finals. Good week to be a sports fan!
/Shyam
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