The Vantagepoint Market Perspective: Stagnation and Stimulus

02/09/2021

 

Friday’s middling employment report was somewhat promising on the surface — until you dig into the details. 

The nation’s economy added 49,000 new jobs in January, which was better than the revised 227,000 jobs it shed in December. Still, according to the latest tally, the economy lost a net 9.3 million jobs in 2020. So, while January’s gains are a plus, the nation’s businesses clearly don’t have the momentum on the hiring front that they’ll need if they’re going to regain all the ground they’ve lost. 

Meanwhile, the unemployment rate — which is based on a separate survey — slid to 6.3% in January from 6.7% in December. However, part of that drop may stem from the 406,000 people leaving the labor force, coupled with a population decline of 379,000 — the latter of which reflected the Bureau of Labor Statistics’ annual update to its data based on current estimates from the U.S. Census Bureau.

Overall, the latest jobs report reflects an economic rebound that is not at all robust, but instead has cooled from its initial rapid rebound last year. In other words, it now seems to just be muddling along, taking the path of a square-root-shaped recovery, rather than a V-shaped bounce back to pre-pandemic levels.

Stimulus Size

That anemic growth appears to bolster the Biden administration’s contention that a larger economic stimulus package is needed to kick-start the economy. At the same time, various Republicans and centrist Democrats argue that the overall price tag of the stimulus should be smaller because it could result in inflation.

At present, the momentum for the shape of the stimulus package favors a larger, rather than a drastically scaled down, package. As of this writing, legislators are focusing on the details — instead of the overall price tag — of the deal, such as the income threshold for those receiving stimulus checks, how high the minimum wage should be, and the level and length of any extension in unemployment benefits.

Then there’s the Federal Reserve, which has indicated it has no intention of raising interest rates anytime soon, nor does it have any significant short-term concerns about inflation. So legislators and others who are arguing against a larger stimulus package seem to be running counter to what the Fed is saying, which is basically that the lack of inflation and a stalling economy are a larger danger than the risk of having inflation rear its head.

The Market’s Take

As for the virus and the vaccines to counter it, Wall Street appears intent on continuing to relentlessly focus on the positive and ignore any headwinds the recovery may face. That includes the efficiency of the distribution of vaccines, which has varied widely across the country and has some companies shifting their plans and forecasts about how and when consumers will return and business will get back to normal.

Experts have estimated that more than 70% of the population would need to develop immunity to the virus — either through vaccines or catching it and recovering from it — in order to stop its spread. But currently, the lack of access to vaccines and the unwillingness of some to take them, seem to be hindering progress toward stamping out the virus’ spread anytime soon.

Meanwhile, the market, as it has been inclined to do, continues to only see good times ahead rather than any potential negatives on the horizon. On Monday, the S&P 500 notched the latest in a recent string of new highs.

Still, it’s worth noting that investors have already likely priced in the benefits from any full restart of the economy. As long as the potential for a V-shaped recovery exists, market sentiment could continue to justify future valuations. Whenever the economy actually enters its true post-pandemic reopening — however far down the road that may be — market sentiment may be tested if the reality of that reopening differs from current expectations priced into today’s markets.

Disclosures:

This information is intended for institutional use only and is not intended for individual investors or the general public. This article includes links to external websites. While we believe this information to be reliable, we cannot guarantee its complete accuracy.

Please note that this content was created as of the date indicated and reflects the authors’ opinions. These opinions are subject to change, without notice, due to market conditions or other factors.

This is not intended as a solicitation nor does it constitute investment, tax, or legal advice. Reference to any fund or asset class is not a recommendation to buy, sell, or hold that fund or asset class. Neither ICMA-RC nor its subsidiaries are responsible for any investment action taken as a result of the information provided herein or the interpretation of such information. Investors should carefully consider their own investment goals, risk tolerance, and liquidity needs before making an investment decision. Investing involves risk, including possible loss of the amount invested. Past performance is no guarantee of future results.

When Funds are marketed to institutional clients by our Investment Only (IO) team, the Funds are offered by ICMA-RC Services, LLC (RC Services), an SEC registered broker-dealer and FINRA member firm. RC Services is a wholly owned subsidiary of ICMA-RC and is an affiliate of VantageTrust Company, LLC and Vantagepoint Investment Advisers, LLC. Learn more at www.vantagepointfunds.org.

Disclosures:

This website is for institutional use only and is not intended for individual investors or the general public.

This information is intended for institutional use only and is not intended for individual investors or the general public.

Please note that this content was created as of the date indicated and reflects the authors’ opinions. These opinions are subject to change, without notice, due to market conditions or other factors.
This is not intended as a solicitation nor does it constitute investment, tax, or legal advice. Reference to any fund or asset class is not a recommendation to buy, sell, or hold that fund or asset class. Neither ICMA-RC nor its subsidiaries are responsible for any investment action taken as a result of the information provided herein or the interpretation of such information. Investors should carefully consider their own investment goals, risk tolerance, and liquidity needs before making an investment decision.

When Funds are marketed to institutional clients by our Investment Only (IO) team, the Funds are offered by ICMA-RC Services, LLC (RC Services), an SEC registered broker-dealer and FINRA member firm. RC Services is a wholly-owned subsidiary of ICMA-RC and is an affiliate of VantageTrust Company, LLC and Vantagepoint Investment Advisers, LLC. Learn more at www.vantagepointfunds.org.