The Week in Review: December 14, 2020
Marking the Recession’s End
The National Bureau of Economic Research (NBER) is a private, nonprofit, nonpartisan organization dedicated to conducting economic research. Why do we care? It is the official arbiter of economic recessions and expansions. It celebrated its 100th birthday this year.
The NBER defines a recession as “the period between a peak of economic activity and its subsequent trough, or lowest point.” It normally views a recession as “a significant decline in economic activity that lasts more than a few months.”
Unquestionably, we experienced a significant decline in activity, and the NBER rightly marked the peak of the last cycle as February. The prior expansion lasted a record 128 months.
But lockdowns brought an end to the expansion, as employment, consumer spending, and industrial production fell sharply in March. The decline accelerated in April—see Table 1.
But a sharp rebound in May and June ensued. While economic growth has recently moderated, the most economic reports are still positive.
We are not back to pre-pandemic levels, but a recession does not end when we reach the previous peak, which in this case would be February. An economic expansion begins when key measures of economic activity begin to rise.
Based on that criteria, we hit bottom in April. Yet the NBER has not declared that an economic recovery has started. It’s possible the NBER fears a second downturn in activity amid increased lockdowns and restrictions.
The body of economists that make up the NBER may be cautiously awaiting economic activity early next year before declaring that the COVID-19 recession is over. If so, it can backdate the end of the recession.
If the NBER time-stamps April as the recession’s end, the three-month contraction would be the shortest ever. Its records date back to 1854.
Even with the improvement in the economy, some industries remain under pressure. But others have improved, and the strong rally in the stock market suggests we’ll see continued economic gains into the middle of next year, even if that improvement isn’t a straight line higher.
If you have any questions or concerns, feel free to reach out to me, Will, or Tyler.
Two for the Road
As recently as 2013, Exxon was the largest company in the world. Today, ExxonMobil is not even in the top 40 most valuable companies in America. —Axios, November 1, 2020
Even without further fiscal support, consumers collectively are sitting on more than $1 trillion in "excess savings" over and above pre-COVID levels. The S&P 500 companies have a record $2 trillion in cash, and those with debt have refinanced at rock-bottom rates and extended maturities to record length. —CNBC December 5, 2020
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.