The COVID-19 Recession is the weirdest we've ever had. There is no way anyone could have forecast it. It did not happen because the Fed was too tight. It did not happen because of a trade war. It was self-inflicted, caused by COVID shutdowns... The pace of recovery will depend heavily on renewed shutdowns and the speed of a vaccine rollout.
S&P 4,200 - Dow 35,000...we anticipate the vaccines will work roughly as advertised, and businesses will continue to improve in handling the obstacles posed by the illness and government shutdowns alike. Meanwhile, the Senate should remain a check on aggressive tax hikes, and the federal courts may curb excesses in regulation. New entitlements? Highly unlikely. In addition, it looks like trade conflicts with other countries will ease.
Let’s rethink the issues around instant gratification. It’s OK to get your online order through Amazon Prime within hours or a day, but it’s not the same with getting a pre-tax 401(k) contribution today only to have to pay more in taxes later on.
For now, pulling these funds from the Fed will not harm market liquidity, as markets are behaving quite well. In addition, taking these funds back will hopefully muzzle some at the Fed who have become more vocal in their recommendations about fiscal policy, supporting a very large expansion in the size of government, a policy at odds with the preferences of the current Administration. In other words, Treasury is telling the Fed to stay in its monetary-policy lane.
The resilience of the economy and corporations has rarely been tested as it was this year. This experience, combined with recent announcements about vaccines and therapies, will lead to further economic growth. Some uncertainty remains, it's never fully gone, but when we compare the unknowns of today to that of just seven months ago, the risk to remaining invested in great companies has substantially declined.
As far as policy goes, what all this means is that a major tax hike, the Green New Deal, Medicare for All, and court packing are off the table. Yes, a Biden Administration will generate more rules and regulations, but the federal courts and all those Trump appointees during the past four years are likely to make sure agencies and departments stick to their legal mandates as passed by Congress.
No More Lockdowns...we also need to come to grips with the fact that shutdowns cause long-term harm. We all know the physical and mental health problems that business and school closures have on people. These are real.
To reiterate, this Thursday morning we expect the government to report a huge, and virtually unprecedented, surge of a 33.4% annualized growth rate in real GDP growth for the third quarter...Obviously, the US will not keep growing at this rate, but the question remains about how much might it slow?
There is nothing normal about the 2020 recession. Massive nationwide shutdowns of “non-essential” businesses caused real GDP to drop at a 31.4% annual rate in the second quarter, the biggest drop since the 1930s. However, as we expected, a V-shaped recovery is being traced out. On October 29th, in ten days, we expect a report that says third-quarter real GDP rebounded at a 33.4% annual rate.
COVID lockdowns crushed the economy in the first half of 2020, with real GDP down 5.0% at an annual rate in the first quarter and 31.4% at annual rate in the second quarter, ...But for the third quarter, the US is tracing out a V-shaped bounce and likely grew somewhere between 30 - 35% at an annual rate, the fastest increase in real GDP for any quarter since at least World War II.