It’s time once again to give thanks
There’s never a bad time to list reasons for being thankful. But this year, our annual Thanksgiving exercise feels like it takes on even greater significance.
There’s much for investors to celebrate
While we still face challenges ahead, this year I celebrate the global vaccine rollout, the booming US job market, and much more.
There’s never a bad time to list reasons for being thankful. But this year, our annual exercise feels like it takes on even greater significance. It was only a year ago that COVID cases were rising at catastrophic rates, and hospitalization and fatality rates were following in tow. Vaccines trial results were promising but still pending approval. The economic recovery had commenced but was still tenuous. What a difference a year makes.
As we approach Thanksgiving 2021, we recognize that challenges remain. The effects of the pandemic are still with us. COVID cases have come down meaningfully but are elevated.1 The prices of goods, including the cost of Thanksgiving turkeys, have risen as consumers unleashed pent-up demand on an economy struggling to rebuild supply.2 Many American families are still wary about gathering for yet another holiday. Nonetheless, substantial progress has been made in the past year and is worth celebrating. Instead of lamenting the fact that our lives are not yet back to “normal,” let’s instead focus on the true spirit of the holiday and remind ourselves of what we’re thankful for.
Below is a list of 10 items that investors can be thankful for this year.
1. Vaccines have been rolled out globally
At last year’s Thanksgiving tables (many of which were outside or in garages), many families spoke longingly of a vaccine rollout at some future point. Since then, 194 million Americans have been fully vaccinated with another 31 million receiving at least one jab.3 Vaccines are also now available to 28 million US children ages 5 to 11.4 It’s not just a US story. Countries such as South Korea, Canada, Japan, and Italy have inoculated over 75% of their populations.5 For their part, emerging market countries such as Vietnam and Thailand, which as of April of this year had not embarked on an immunization process, have now partially vaccinated over 60% of their populations.5
2. A semblance of normal life is returning
Many Americans are emerging from their homes. Airline travel has returned to near-2019 levels with roughly 1.5 to 2.0 million Americans going through TSA checkpoints each day.6 Restaurant reservations are only 4% below 2019 levels.7 Broadway is back. Stadiums are full.
3. US households are generally in good shape
US household net worth stands at $142 trillion, an all-time high and up 28% from the depths of the 2020 recession, driven in part by rising equity and home prices.8
4. The US job market is booming
Last Thanksgiving, the unemployment rate stood at 6.9%. Since then, 5.8 million Americans have joined the ranks of the employed. Wages are rising as employers compete to find workers.9 While some may view higher wages as an ominous sign for corporate profitability and future inflation, it’s important to remember that wages as a percent of gross domestic product had previously fallen to its lowest level in the post-WWII period and is still well below the historical average.10 Higher wages tend to drive demand.
5. Business investment is robust
Businesses are flush with cash and are investing at a rapid rate,11 which ultimately will help to rebuild the nation’s supply of goods and potentially improve future productivity.
6. Inflation is elevated, but there may be early signs of supply-chain challenges easing
Higher prices are a concern but there may be initial signs that the worst of the problems could be abating. For example, Chinese exports increased 27.1% last month, as the nation’s exports through October have already surpassed all of 2020.12 Goods such as household appliances, lightings, and furniture saw the fastest export growth in October. In addition, shipping costs (shown below) may be showing signs of having peaked. Further, there are signs that the semiconductor industry could move closer to balance in the coming months, particularly as factories in Asia come back online.
Have shipping costs peaked?
7. The market didn’t taper tantrum this time
For all the hand wringing over the US Federal Reserve tapering its asset purchases, this time, unlike in 2013, the market took it largely in stride. It’s a testament to the current strength of the global economy compared to 2013 and highlights the markets’ embrace of tighter policy at a time when inflation is elevated.
8. Companies are growing into their valuations
Corporate earnings have been so strong that the price-to-earnings ratio of the US equity market has declined meaningfully this year — from 30.8x at the end of February to 25.4x at the end of September — even as stocks have staged a strong advance.13
9. The backdrop for equities remains strong
I expect the global economy to continue to expand in 2022 albeit at a slower pace. A moderation in growth should help to ease inflationary pressures and provide cover for the US Federal Reserve to remain relatively accommodative for the foreseeable future. There is still a substantial amount of money on the sidelines,14 and we would expect that money to continue to find its way into the equity market. Market cycles tend to end with excessive investor optimism and a prolonged monetary policy tightening cycle. Seen from that lens, one could surmise that the business and market cycles have room to run.
10. Human ingenuity continues to solve our most challenging problems
Last year I wrote that investors betting against the economic and market recovery were betting against medicine, science, and the nation’s policymakers. A year later, US markets are near all-time highs. The past year, while incredibly challenging and heartbreaking, has steeled my optimism for the future, knowing that while we always face challenges, we always come back stronger.
Happy Thanksgiving! Be safe and be well.
- 1 Source: World Health Organization, 11/8/21
- 2 Source: US Bureau of Labor Statistics, 10/31/21
- 3 Source: US Centers for Disease Control and Prevention, 11/10/21
- 4 Source: US Centers for Disease Control and Prevention, 11/2/21
- 5 Source: World Health Organization, 11/8/21
- 6 Source: US Transportation Security Administration, 11/8/21
- 7 Source: OpenTable, 11/8/21
- 8 Source: US Federal Reserve, 6/30/21, latest data available.
- 9 Source: US Bureau of Labor Statistics, 10/31/21
- 10 Source: St. Louis Fed, 9/30/21
- 11 Source: US Census Bureau, 9/30/21. As represented by Capital Goods New Orders Nondefense Excluding Aircraft.
- 12 Source: Customs General Administration People’s Republic of China, 10/31/21
- 13 Source: Bloomberg, Standard & Poor’s. As represented by the S&P 500 Index. Indices cannot be purchased directly by investors. Past performance does not guarantee future results.
- 14 Source: Investment Company Institute, 11/8/21. As represented by ICI Money Market Funds Assets.
Originally Posted on November 18, 2021
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The World Container Index, produced by Drewry, is a composite of container freight rates on eight major routes shipping routes to and from the US, Europe, and Asia.
The price-to-earnings (P/E) ratio measures a stock’s valuation by dividing its share price by its earnings per share.
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