The Week Ahead – Perspective

Welcome to “The Week Ahead” where we take a moment to provide our thoughts on what we can expect in markets and the economy during the upcoming week.

As we publish today’s The Week Ahead, I am also celebrating my birthday. Another year older, and hopefully a bit wiser. At 48 years old, I have had the privilege of living through approximately 20% of this great country’s history. I have fortunately lived through a period of relative peace and unprecedented prosperity. Compare my experience to those born in the year 1900. Here is a list of some major historical events in their lifetimes:

• World War I
• The Spanish Flu pandemic
• The Great Depression – unemployment hits 25% and global GDP drops 27%
• World War II
• Korean War
• Vietnam War
• The Cuban Missile Crisis –  a tipping point in the Cold War, narrowly avoiding WWIII

It is good to keep perspective because although we are currently living through a particularly difficult time, our history is filled with harrowing events that we have overcome. I expect this pandemic and global recession to be no different. We are already through the recession with the economy rebounding strongly. After seeing the worst decline in Gross Domestic Product (GDP) on record in which second quarter GPD declined 32.9%, we are now seeing surging growth. Economists are forecasting 20% economic growth over the next two quarters, and a 5-6% growth rate in 2021. If all continues to go well, we expect GDP to have fully rebounded by 2022.

Equity markets are also optimistic about the future and have priced for further positive developments. If science can deliver a coronavirus vaccine by the end of the year and widespread distribution is ready sometime next year, we can get the economy back to full throttle. In addition, there have been 562 simulative efforts by global policymakers this year. Much of this massive stimulus will take another year or more to be fully realized. The point being we still have significant monetary policy tailwinds to support the global economy. We also expect Congress to pass the latest fiscal package at a $1.5T level, which would also be supportive for asset prices.

This week we will see many interesting data points. One very powerful metric to note is the extremely low levels of inventory levels. Due to the supply shock caused by the pandemic, inventories are very thin. As the global economy continues to strengthen, inventory rebuild should add further power to our bullish outlook.

Data deck for August 10–August 14: