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Tuesday, March 16, 2021

No one can be bullish enough right now

We're one week away from lapping the one-year anniversary of the market's pandemic low.

And Wall Street is still struggling to keep up with the pace of both the recovery in markets and the real economy.

As happens over the weekends and into Monday morning, The Morning Brief's inbox is flooded with weekly updates from economists, strategists, and portfolio managers from across the investment landscape. And the consistency with which these folks have been trying to reframe their outlooks to remain appropriately bullish has been striking.

Late Friday, Deutsche Bank strategist Binky Chadha upped his year-end price target for the S&P 500 to 4,100 from 3,950. Interestingly, this call assumes a lower multiple for the benchmark index but with earnings now forecast to grow 43% over last year in 2021, the firm sees stocks continuing to push higher.

The team over at BlackRock's Investment Institute also caught our attention on Monday, writing, "We see the path out of the Covid-19 shock as a 'restart' — not a typical business cycle 'recovery.' The key reasons are the distinct nature of the shock, broad-based pent-up demand and different inflation dynamics."

Of course, a recovery outpacing expectations isn't exactly a new theme for readers of The Morning Brief.

Just a few weeks back we highlighted January's retail sales report as yet another piece of a puzzle suggesting the economy was bouncing back better than feared. February data on retail sales will be released later this morning and could offer a similar assessment. Recent data from the U.S. manufacturing sector also suggests that upside risks remain a more relevant part of any forecast right now than downside fears about a backslide in economic growth.

"Most market participants and policymakers have been surprised by the speed of the recovery," said Chetan Ahya, chief economists and global head of economics at Morgan Stanley. "On our estimates, the US economy will reach pre-COVID-19 output levels by the current quarter." The firm expects U.S. GDP to grow 7.3% this year and 4.7% next year.

"From 3Q21 onwards, we expect US GDP to overshoot the path it was projected to follow before the recession," Ahya adds. "The last time GDP rose above its pre-recession path was in the 1990s. Back then, it took 15 quarters compared to seven quarters this time around. Moreover, we expect the US economy to reach 103% of its pre-recession path in 12 quarters (i.e., by December 2022) versus 27 quarters in the 1990s."