Investing
COVID-19 recovery: 5 indicators show strong economic and market activity
Since November’s vaccine breakthrough, the economic healing process is well underway. Here’s what we’re seeing.
Our Top Market Takeaways for April 9, 2021.
Markets in a minute
Higher and higher
Since our last note on April 1, the S&P 500 broke 4,000 for the first time in history—and it keeps on climbing. Heading into Friday, the index had rallied another +1.9% on the week and was sitting just a hair below 4,100. European markets joined the party, too: the Stoxx Europe 600’s +1.1% gain was enough to push it to its first all-time high since January of last year.
Between the stock market records and ongoing decline in volatility, markets are reflecting an environment defined by supportive policy, reopening, and promising growth prospects. We’ve moved on from hoping the world will heal to watching it actually happen.
Spotlight
COVID-19 recovery: 5 indicators show strong economic and market activity
Today marks five months since Pfizer said its vaccine had much better-than-expected efficacy against COVID-19, ushering in hope for the end of the pandemic, lockdowns and shamefully many hours watching Netflix. With this promise, risk assets have rallied, consumers have broadened their spending, and economic activity and growth have started to ramp up. Here are five charts that tell that story for us.
1. “Risk on” has been the name of the game. No surprise, stocks popped higher on the news. Global equities are up +18% since the Pfizer announcement came on November 9. Europe, where the vaccine rollout could end still-ongoing lockdowns, is up +21%. And broad commodities (think: industrial, energy and agriculture, which tend to follow trade and the broader economic cycle) aren’t too far behind. High yield bonds faced off against higher interest rates and have delivered over a +5% return, which is definitely better than core fixed income (-2.2%). Treasury bonds and gold (two traditional “safe havens”) have fared the worst.
2. As expected, earnings growth has started pulling its weight. The vaccine breakthrough bolstered investors’ hopeful outlook for 2021, which was reflected in further multiple expansion for the world’s major stock markets. But as the global economic engine started revving again, corporate earnings began to pick back up. For example, since November, earnings growth has contributed to more than half of U.S. stocks’ +17.6% return (contrast that to the period between the market bottom in March and the vaccine announcement, when earnings contributed less than a fifth of the return). In the year ahead, we expect earnings to do even more of the heavy lifting for equity upside as activity roars back to life and consumers spend down excess savings.
3. Life isn’t fully back to normal, but mobility is picking up. As more of the developed world’s population gets vaccinated, case counts drop and the weather warms up, more people are transitioning away from the lockdown lifestyle. Google data tracking activity at everything from retail stores and recreation sites to transit hubs and offices has made a notable rebound from its lows. Communities may not yet be bustling to the same degree as they were before the pandemic, but they’re getting there.
4. Consumers are spending with gusto. As the pandemic hit, consumers were quick to shift their preferences to all things DIY and electronics—so much so that the “goods-producing” part of the economy swiftly rebounded, and even flourished. But as the recovery continues on, that broader momentum isn’t slowing down. Overall card spending is 20% stronger than it was at this point in 2019 (and ~70% higher than at this point in 2020).* And as you might expect, given the rebound in mobility, Americans are spending again on hard-hit services such as restaurants, lodging and entertainment. All this spending bodes well for the recovery—the consumer accounts for ~70% of the economy.
5. Even as some indicators continue to play catch-up, the economy at large is roaring back. A number of key growth gauges (one of our favorites, purchasing manager indices, shown below) are consistently signaling expansion. Manufacturing is soaring and has cushioned the economic impact of further lockdowns, while services look set to surge. In a sample we track of developed and emerging market economies, 95% are expanding on the manufacturing front (compared to 62% for services). As the vaccine rollout enables economies to ease restrictions, that gap between manufacturing and services should grow narrower and narrower.
All in all, the world already feels different now than it did in November. We believe the ingredients are all there to make for a year of economic growth not seen since the early 1980s. Jamie Dimon, our Chairman and CEO, explored this point further in the JPMorgan Chase Annual Letter to Shareholders. To read about our thoughts on embracing this optimism in portfolios, see last week’s note: How might investors position their portfolios for the current environment?
All market and economic data as of April 2021 and sourced from Bloomberg and FactSet unless otherwise stated.
We believe the information contained in this material to be reliable but do not warrant its accuracy or completeness. Opinions, estimates, and investment strategies and views expressed in this document constitute our judgment based on current market conditions and are subject to change without notice
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The MSCI China Index captures large- and mid-cap representation across China H shares, B shares, Red chips, P chips and foreign listings (e.g., ADRs). With 459 constituents, the index covers about 85% of this China equity universe. Currently, the index also includes Large Cap A shares represented at 5% of their free float adjusted market capitalization.
The Standard and Poor’s 500 Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The index was developed with a base level of 10 for the 1941–43 base period.
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