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.