On Air with Altair: 2Q 2021 Market Review Video
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- The world economy has rebounded strongly primarily due to a powerful mix of vaccinations, the relaxation of pandemic restrictions and massive stimulus and support from governments and central banks.
- We’ve seen consumer and business activity approach normal levels again and the service economy which was so decimated during the pandemic is expanding at strong levels.
- Global GDP is now projected by the World Bank to expand by 5.6% this year, which would be its strongest post-recession growth in 80 years.
- But clearly the main risk out there is the contagious Delta variant of COVID-19 and whether that will force cities and states to restrict activities once again.
- And the certainly the sore spot in the economic data is the slow recovery in the labor market, with nearly 7 million jobs still absent.
- But overall we’re very encouraged by the trends in the economic data, strong corporate earnings and solid fundamentals should continue to drive growth well into next year.
- The abrupt reopening of the economy along with pent-up demand and overwhelmed supply chains have pushed consumer prices to a 13-year high.
- And while Inflation is certainly something we’re watching closely.
- if you take a close look at the categories that are driving the big price increases, its really in the areas that are closely tied to the reopening such as used cars, airfare and lodging.
- But if you looked at health care, education and technology, these are very large and important segments of our economy and prices have remained fairly stable
- Once summer is over and unemployment benefits sunset, we think you’ll begin seeing a deceleration in the inflation rate and so we continue to remain supportive of the Federal Reserve’s argument that the surge will be relatively short-lived.
FED’S KEY ROLE
- How the Fed reacts to inflation in the second half will be pivotal and is ultimately what investors will be watching.
- If higher inflation is only temporary as the Fed says, there’s likely very little for it to do.
- But if inflation proves to be more stubborn, then the FED will be very deliberate in how they start talking about the tapering process since they’ll want to avoid the same mistakes that led to the taper tantrum in 2013.
- In general we think the Fed will err on the side of being slow to tighten.
- By moving gradually and providing sufficient notice, the Fed should be able to start winding down its easy-money policies without too much disruption and more importantly
- avoid any policy errors.
You can find our full commentary here. Thank you for watching.
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