CIO Commentary
There is a lot of momentum building in the U.S. economy. Easy Federal Reserve monetary policy has now been joined by aggressive Federal government fiscal actions. All the while, vaccines – the ultimate tonic to improved economic performance – are being rolled out leading to increased mobility and steps toward a return to normalcy. Corporate earnings are likely to power forward at a robust pace in 2021. Markets – resilient in the face of the Pandemic over the course of last year – continue to march forward on this fuel.
Jamie Dimon, J.P. Morgan’s iconic CEO, described the current outlook in his April 7th annual shareholder letter: “I have little doubt that with excess savings, new stimulus savings, huge deficit spending, more QE, a new potential infrastructure bill, a successful vaccine and euphoria around the end of the Pandemic, the U.S. economy will likely boom. This boom could easily run into 2023 because all the spending could extend well into 2023.”
While Alfred E. Neuman may ask: “What, me worry?”, we do think there are several factors to consider as the good times roll. First, inflation. Second, rising bond yields (see point one) and third, rising valuation levels. Tax rates will also soon start going up, and the regulatory environment is likely to be more onerous.
Moreover, there are clearly signs of rampant speculation. The SPAC (Special Purpose Acquisition Corporation) boom of 2021 may prove especially hazardous to the public investors’ health. Barry Sternlicht, Starwood’s Chairman and CEO is no stranger to SPACS and in a recent CNBC interview, he put it this way: “It’s a little out of control. No, it’s a lot out of control. Don’t expect Wall Street to regulate the launch of SPACS. It is making too much money. If you can walk, you can do a SPAC.”
To read more, download the full First Quarter 2021 Investment Perspective.