Strategists warn of 'peak growth': Morning Brief
Yahoo Finance's Myles Udland, Julie Hyman and Brian Sozzi break down the outlook for economic recovery as America continues to reach vaccine milestones.
Video transcript
MYLES UDLAND: Let's begin our 10:00 hour as we usually do, with today's morning brief and kind of a-- let's call it a debate of sorts, an outline of two different views of the US economy. The team over at Oxford Economics has been tracking the US recovery for some months now. Really, they baselined the economy back to January of 2020, and we have seen the ups and downs.
And of course, we can start to see, you know, the real signs of a rebound here. You look at the headline growth here for Oxford, and we see that there is-- the economic growth is back at the best level since March of 2020. And of course, in March of 2020, the economy was crashing. So seven straight weeks the firm's US recovery tracker has improved. So there's the headline, the US economy continues to improve.
On the other side, Brian Sozzi-- and we see this commentary from more of the strategy component of a lot of these firms-- maybe not quite the economics group, but it's complementary there-- this idea of peak growth coming into the market. Goldman Sachs once again yesterday flagging some of that strong PMI data that we've seen. Just in the last 20 minutes or so, we've gotten some readings from Market Economics on activity in the manufacturing and the services sector. And the idea that they're seeing is peak growth here in the US.
And I think it gets us back to that age-old debate around how is the market viewing what is happening in the economy. Does it care that, right now, we're in the midst of a continued economic boom, or does it care that, even with a 10% print on second quarter GDP, since that will not improve from there, there is reason to be cautious? I think it's going to be interesting to see how the market digests this chart, Sozz, which, again, suggests basically flat market for the next two quarters.
BRIAN SOZZI: Myles, well, at some point, there's going to have to be a day of reckoning, if you will, for [? Mr. ?] [? Market, ?] because what Goldman put out yesterday was fascinating in that, by the fourth quarter of next year, you could see GDP growth-- GDP growing 1.5%. So in addition to that, you're seeing companies start to cycle very strong snapbacks in sales and profit growth for this year. And Julie, you almost have to wonder, you know, has the market priced this stuff in? And as we sit here today, you see the S&P 500 trading about 23 times forward earnings, I would say no way, Jose.
JULIE HYMAN: You know, there's also the potential, though, for beats of these economic projections. As we've talked about already, a lot of various economists have said, well, actually economic growth this year is going to be stronger than we anticipated, and maybe it'll even be stronger than that. Maybe that's priced into the market already. Maybe that optimism is already priced in the market, but maybe it's not. So there's always the potential for these numbers to beat.
It also bears reminding that, OK, so even if we've reached peak growth and that is not going to be as good for stocks, is it still going to be good? In other words, are you still going to have positive returns, they're just not going to be as big? And I think that's a possibility, too. So it's not-- you know, I guess what's bad in the market, right? Bad is losing your money. Is making less money bad? I guess it depends.
MYLES UDLAND: Yeah, and it goes to a stat that we've gotten from a couple of different folks, which is the second year-- so let's bear with me on this one-- it's like the second year of bull markets, in which the first year of the bull market saw the S&P rise more than 30%, tends to also see the S&P rise by double digits. But of course, if the market goes up 12% this year, to your point, Julie, on a relative basis, it's disappointing, after you just gained 30%. And so, you know, it's kind of one of those like [? deep ?] [? cut ?] baseball stats, and no one really can follow it. And it's not sure if-- it's not clear if that means anything. But it's a complicated, overcomplicated way of saying that the market can still do really well this year, but if it's not as good as last year, some folks might go home disappointed, you know, and sound the alarm for this, that, or the other reason.
