Opening Statement from the July 2021 Intelligent Investor (part 1)

Opening Statement from the July 2021 Intelligent Investor (part 1)

Originally published on July 7, 2021 

Overview

The U.S. economy is experiencing a reflationary surge due to pent-up demand. But persistence of supply chain bottlenecks and record-low interest rates could progress into a more lasting period of inflation down the road. We currently do not see any evidence to indicate this as a likely result.

For the time being, relatively weak jobs data ensures the Fed is unlikely to raise interest rates in 2021. This is good news for equities investors, but bad news for fixed income investors.

Jobs Data

After two consecutive months of disappointing results, June Non-Farm Payrolls data came in better than expected at 850,000. Most of the 22 million jobs lost (between February and April 2020) in the U.S. due to the coronavirus pandemic have returned. But there are still 6.8 million fewer jobs now than prior to the onset of the pandemic-led recession (which officially began in February 2020). This is reasonable given the uncertainty from the travel and leisure sectors as well as brick-and-mortar retail. On the other hand, it is also important to note that since August 2020 the economy has recovered only 4 million jobs. 

Even though the unemployment rate has just come off the previous pandemic period low of 5.8% and stands at 5.9%, it remains relatively high especially when compared to the pre-pandemic low of 3.5% recorded from the February 2020 data. Meanwhile, inflation data remains on an uptrend because...