The U.S. recovery that began last summer is rapidly gaining momentum. Moreover, what Americans are about to witness could be a diametric opposite of the anemic rebound after the 2007-2009 recession, according to Federated Hermes Chief Market Strategist Phil Orlando.

In contrast to the Great Recession brought on by a crisis in housing and banking, the underlying fundamental strength of the U.S. economy is “very powerful,” he explained. The savings rate over the last year reached a multi-decade high and consumers are chomping at the bit to go out and spend.

When the $1.9 trillion stimulus is injected into the system, the results suggest there could be a boom with startling numbers. Once the nation reaches herd immunity sometime early this summer, people are likely to get giddy. Orlando cites the prediction of Cornerstone Macro’s Nancy Lazar that GDP could surge 8% or 9% this year.

That would mark the single best year of economic growth since 1959, which followed the so-called Sputnick recession of 1957 and 1958. During one quarter in 1958, GDP tumbled 13.6%.

This time is different in several key respects. Paramount among them is the manner in which the crisis has been addressed. Ridiculous moonshot resources have been thrown at Covid and it appears to be working.

Orlando also thinks that President Joe Biden’s attitude is colored by the belief that former President Obama’s $800 billion stimulus package in 2009 was too small. That explains why Biden is taking the precise opposite approach. If he is going to make a mistake, it will entail spending too much money.

The Vaccine Is A Game Changer
Normally, “it would typically take five to 10 years to eradicate a problem” and develop a vaccine for something like the coronavirus, Orlando maintains. But the spectacular speed with which vaccines were developed changes all sorts of economic trajectories. “What that means is that we as a people are going to feel much more comfortable,” he continued.

Then there is Federal Reserve policy. Their response has “been equally impressive,” Orlando argued.

Fed Chairman Jay Powell has not wavered from his declaration almost a year ago that the central bank would keep the Fed funds rate “zero-bound until at least 2023.” Additionally, they are expected to continue buying $120 billion a month of fixed-income securities.

For equities, that represents a “continuation of TINA (There Is No Alternative to stocks).” Or you can play it safe. But for what?  “Go into bonds and you’ll get bagels,” Orlando said.

Finally, there is corporate earnings, the lifeblood of the stock market. Companies beat Wall Street earnings estimates by 16% in last year’s fourth quarter, the third-widest margin in history. The other two biggest “earnings’ beats” in recent history came in the second and third quarters, he said.

Orlando believes many companies used the pandemic to become leaner, while boosting their productivity via technology. He expects earnings on the S&P 500 to rise from $150 a share last year to $180 in 2021. “If we’re wrong, we’re wrong to the downside,” he said.

Federated Hermes now believes the S&P 500 will reach 4,500 by year-end. That means a gain of 25% for all of 2021—less than the 75% jump it recorded in the final three quarters of 2020, but impressive nonetheless.

Orlando acknowledges that Biden’s stimulus bill has its skeptics. Former Treasury Secretary Larry Summers has estimated that the output gap stands at about $600 billion and the Biden stimulus is three times that size. Summers is hardly the only one question the size of the stimulus.

But this recession is very different from the financial crisis 13 years ago. Back then, there was lots of blame to go around—from banks that designed complex, subprime mortgages that exploded to consumers who unrealistically leveraged themselves.

This time the pain has hit people at the lower end of the income ladder who live paycheck to paycheck. Orlando notes that the unemployment rate for college graduates is 3.8%. For those with only a high school education or less, it’s 10.1%.

The effort Washington is attempting to engineer “should be aimed at this group,” he said. Many people in low-wage service jobs find themselves “out of work through no fault of their own. They need a bridge to get them to the place where the economy can support them on their own.”