Signals indicate the fourth quarter of 2021 and 2022 will show strong economic growth despite the headwinds posed by the Delta variant of Covid-19 and some volatility in consumer confidence, according to Jeff Schulze, investment strategist at ClearBridge Investments.
The economy is set on “a goldilocks scenario for equity investors,” Schulze said in an interview today.
ClearBridge Investments, a global investment manager based in New York City with $198 billion in assets under management, produces an economic analysis called the ClearBridge Recession Risk Dashboard that looks at consumer health, business activity and financial stresses. Right now, all indicators are in the favorable range and set for expansion, Schulze said.
“There may be a slight slowdown in retail sales and a small downturn in consumer confidence, but it is no more sinister than that,” he said. “Any slowdown is already priced into the market.”
Advisors should be telling their clients to expand their market exposure, especially if they are sitting on cash, Schulze added. Overall, GDP growth should be 6% for the fourth quarter of this year and into next year.
“We are seeing the strongest GDP growth year since 1984,” he added. “This economy creates a very strong backdrop for companies. It is a strong growth period that should be sustained for five or six quarters. The second year after a bear market, like the one that occurred in early 2020, is typically strong economically.”
In particular, the energy, industrial and financial sectors should perform well in coming months, he said.
Although August showed some disappointing job reports, that was primarily due to the impact of Hurricane Ida on the Gulf Coast, he added.
In a recent blog post, “Anatomy of a Recession,” Schulze said that the rapidly changing landscape in job creation means that the Federal Reserve’s "substantial further progress" barometer for the labor market has not yet been met. This development could delay the Federal Reserve tightening monetary policies.
“Even when the Fed eventually does begin to renormalize monetary policy away from extraordinary crisis measures, their overall stance will still remain quite accommodative, continuing to support the current bull market,” he said.