By Megan Horneman. © Verdence Capital Advisors
- COVID takes a backseat
- Speculation in cryptocurrencies faces regulation risk in the second half of the year
- Some inflation is transitory; watch wage inflation
- The labor market should slowly recover as government benefits expire
- The economy in the second half of 2021 looks strong
As the first half of 2021 closes out, we wanted to focus on critical items we have seen so far and what we expect as we move into the second half of the year.
- Putting COVID in the rear-view mirror: From January to now, we have seen a shift from the worst to the best of the pandemic. At the beginning of the year, there were almost 300k new cases daily, with more than 100k people hospitalized. Just six months later, there are now less than 15k people hospitalized, setting a record low. In addition, almost half of the U.S. is fully vaccinated, and the U.S. is oversupplied with vaccines to the point that we are shipping them to countries in need. Lastly, the country has eased restrictions, with more than 90% of states/territories fully open.
- Look Ahead: We will continue to fight new strains of COVID. However, instead of shutting down the economy, we will educate and vaccinate while living with the virus.
- Cryptos Rise and Fall: The frenzied chase in anything crypto has many scratching their heads. After drastically taking off, the threat of regulation and crackdown in China is attributed to its fall. After the price of bitcoin rose over 100% in 2021, its recent crash wiped out almost all the gains in 2021.
- Look Ahead: The biggest threat for cryptos is regulation. We believe that regulators will take a more aggressive approach in the future.
- Inflation- Transitory or Permanent? Inflation surged in the first half of the year because of COVID effects (e.g., supply crunch, labor shortage). Food and building materials prices also increased considerably. The debating point is whether inflation is here to stay.
- Look Ahead: Some of the rises in prices are transitory. For example, while lumber prices have rolled over, used car prices are still peaking. Currently, the biggest concern is wage inflation, which is not transitory and is the highest input cost for companies. We will see prices slow in the second half of the year but should get accustomed to higher prices than seen in the past.
- Labor Shortage: As of May, the U.S. has restored 15 million of the 22 million jobs lost in the pandemic. There is also a record number of job postings for those that are still unemployed. However, businesses struggle to get employees to return to work because of extended government benefits, uneven reopening of schools, and individual COVID concerns.
- Look Ahead: Extended benefits will expire in September or earlier, which should help get people back in the workforce. It is also likely that schools will normalize their schedules this fall. Wages are rising due to the shortage, which should incentivize workers as the benefits expire.
The Bottom Line:
The U.S. is recovering at a faster rate than anticipated, and the vaccination program has exceeded expectations. Growth should be stable in the second half of the year and beyond as interest rates remain low, the labor market recovers, money supply is high, and corporate, and consumer balance sheets are healthy. Bouts of volatility are foreseeable as most asset classes look frothy, but we will evaluate these as potential buying opportunities.
This material was prepared by Verdence Capital Advisors, LLC (“VCA”). VCA believes the information and data in this document were obtained from sources considered reliable and correct and cannot guarantee either their accuracy or completeness. VCA has not independently verified third-party sourced information and data. Any projections, outlooks or assumptions should not be construed to be indicative of the actual events which will occur. These projections, market outlooks or estimates are subject to change without notice. This material is being provided for informational purposes only and is not intended to provide, and should not be relied upon for, investment, accounting, legal, or tax advice.
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By Megan Horneman