The Week in Review: August 2, 2021
GDP in Q2 Surpasses Prior Peak but Misses the Mark
Gross domestic product (GDP), which is the largest measure of goods and services in the economy, expanded at a robust annualized pace of 6.5% in Q2, up from 6.3% in Q1, according to the U.S. Bureau of Economic Analysis.
The strong back-to-back quarters place GDP above the pre-COVID peak reached in Q4 2019, as illustrated below.
Yet the report almost seems a bit on the anti-climactic side. Despite cheap money and roughly $3 trillion in stimulus passed by Congress last December and March, many expected more. Analysts surveyed by The Wall Street Journal had projected growth of 8.4% in Q2.
This is the latest example of the brightest economic minds failing to hit the mark.
That said, let’s try not to throw cold water on a good report. Spending by businesses remained strong, while the consumer led the way. Notably, we saw a shift in consumer spending away from durable goods, such as autos and home appliances, to services tied to the reopening of the economy.
That is a healthy shift, as production bottlenecks have bogged down manufacturers and led to shortages and higher prices for some goods.
As overall demand is expected to moderate in Q3, manufacturers may have more time to catch up, increase production, and whittle away at backlogs.
Any increases in production would be positive for the economy and the availability of consumer goods, which have been lacking in some sectors.
While most economists believe Q2 was the peak, that doesn’t mean we’re going backward. A peak simply means that the peak in the growth rate probably hit its high mark in Q2 and that a more moderate pace is on tap for the rest of the year.
While forecasters have struggled to hit the mark, most economists expect growth to remain solid, barring a sharp uptick in new COVID-19 cases and related restrictions.
If you have any questions or concerns, please don’t hesitate to let me know.
Two for the Road
Looking at 90 years of data, the S&P 500 rose, on average, 10.8% when bond yields fell and rose 12.2% when bond yields rose. Even separating out periods by quintiles when yields rose the most, the S&P 500 still gained 9% on average. —MarketWatch, July 16, 2021
Frustrated by the rising price of homes, cars, and durable goods like home appliances, 33% of consumers said it was a bad time to buy because prices were too high. This is an all-time record according to data going back to 1960. —Yahoo! July 19, 2021
This commentary reflects the personal opinions, viewpoints and analyses of the Stordahl Capital Management, Inc. employees providing such comments, and should not be regarded as a description of advisory services provided by Stordahl Capital Management, Inc. or performance returns of any Stordahl Capital Management, Inc. Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing in this piece constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Accessing websites through links directs you away from our website. Stordahl Capital Management is not responsible for errors or omissions in the material on third party websites and does not necessarily approve of or endorse the information provided. Users who gain access to third party websites may be subject to the copyright and other restrictions on use imposed by those providers and assume responsibility and risk from the use of those websites. Please note that trading instructions through email, fax or voicemail will not be taken. Your identity and timely retrieval of instructions cannot be guaranteed. Stordahl Capital Management, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
1. The Dow Jones Industrials Average is an unmanaged index of 30 major companies which cannot be invested into directly. Past performance does not guarantee future results.
2. The NASDAQ Composite is an unmanaged index of companies which cannot be invested into directly. Past performance does not guarantee future results.
3. The S&P 500 Index is an unmanaged index of 500 larger companies which cannot be invested into directly. Past performance does not guarantee future results.
4. The Global Dow is an unmanaged index composed of stocks of 150 top companies. It cannot be invested into directly. Past performance does not guarantee future results.
5. CME Group front-month contract; Prices can and do vary; past performance does not guarantee future results.
6. CME Group continuous contract; Prices can and do vary; past performance does not guarantee future results.