Business sector. Even as there are signs of weakness in the consumer economy, the business sector continues to do well. Business confidence and investment are largely back to pre-pandemic levels. Further, specific higher-frequency indicators are showing improvement in many cases, as we can see in this composite of many of these indicators from J. P. Morgan.
The big picture is that the recovery is still on track but that signs of weakness bear watching. If the medical risks continue to rise, the economic risks will as well.
Financial Markets Show More Turbulence
Risks Coming Into Focus
The economic risks are also real, and we do see some slowing in the recovery so far. That will also need to be watched, especially if the medical risks rise. But at the moment, the recovery continues, and there is a real possibility it will accelerate again if the medical risks remain constrained or, especially, if another federal income support program is passed. The risks are real, but so are the opportunities.
Finally, markets continue to be turbulent as investors process the different risks and while more volatility is quite possible. But the fact that, as of now, the medical risks remain contained and the economic recovery continues should provide support.
Given all of this, over the next couple of weeks the most likely case appears to be some deterioration of the medical news (although likely to a limited degree) and continued slow improvement on the economic fronts. While there are certainly risks coming into focus and we need to be aware of them, for the moment, the news remains good.
Brad McMillan is the chief investment officer at Commonwealth Financial Network.
Financial markets rallied last week only to hit more turbulence on rising worries about just how durable the economic recovery was. Given the data we reviewed above, those doubts seem reasonable, which suggests we might see more volatility ahead. That said, the fact that both the medical and economic risks are still relatively low should continue to provide support.
The real news this week is that the pandemic remains under control, although as noted, medical risks are starting to rise again. The effects of the Labor Day holiday exposures and school reopenings are starting to appear in the data, and we have a couple of more weeks to go until the full effects will be apparent. This will need to be watched.