The Week in Review: February 22, 2021
Shifting into Higher Gear—the Case for a Brighter Economic Outlook
After languishing near the end of last year, the economy is showing tentative signs that growth is beginning to pick up. Economic forecasting is sometimes considered educated guesswork, especially in today’s environment, but there are reasons to be cautiously optimistic.
The economy is benefiting from the $900 billion relief package passed in December and seems likely to get another boost from a costlier bill that could pass in a few weeks.
There is plenty of pent-up demand that’s been curtailed during the pandemic. An unusually high savings rate (per U.S. Bureau of Economic Analysis data) suggests there is ample firepower to fuel growth later in the year. COVID-19 vaccinations are ramping up, and the seven-day moving average for new daily U.S. cases is down 70% since early January (U.S. Centers for Disease Control COVID tracker through February 17).
Dr. Marty Makary, a professor at the Johns Hopkins School of Medicine and Bloomberg School of Public Health, wrote in The Wall Street Journal last week that he believes we could reach herd immunity by spring. If so, that would be good news.
Let’s look at one important piece of data that is signaling a firmer economic foundation. Retail sales surged by 5.3% in January, far exceeding the consensus estimate of a 1.1% rise, according to Investor’s Business Daily.
Most analysts point to the $900 billion stimulus package and an easing of COVID restrictions for January’s showing. Notably, the huge miss by analysts highlights the difficulty in forecasting in today’s environment. In this case, the botched forecast was a pleasant surprise.
In addition, industrial production data compiled by the Federal Reserve reflects continued strong performance in the industrial sector, with manufacturing production having recovered 95% of the loss experienced since January 2020 (through January 2021).
Of course, there are always risks, and the path of the pandemic will play a major role. It is also important to consider the unintended consequences of Fed policy and fiscal policy decisions being made today.
But given the fallout from the pandemic, policy makers are willing to take the risk that doing too little could have greater consequences than doing too much.
If you have any questions or concerns, feel free to reach out to me or Tyler.
Two for the Road
The rise of rechargeable batteries is now a matter of national security. Nearly 65% of lithium-ion batteries come from China. By comparison, no single country produces more than 20% of global crude oil output. —The Wall Street Journal, February 5, 2021
Thanks to the combination of reduced spending during the crisis and incomes that have been augmented by government relief checks, many people have an ample amount of money to spend. Federal Reserve figures show that as of the end of the third quarter households had $2.2 trillion more in cash and cash equivalents than at the end of 2019. —The Wall Street Journal, February 5, 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.