The U.S. Economy’s recovery from the
pandemic continues to surpass LPL Research’s expectations, aided by the
accelerating vaccine distribution, massive stimulus, and America’s desire to
resume some semblance of normal daily life. LPL Research raised its 2021
economic and earnings growth forecasts on February 8, and they are doing so
again. They are raising – and narrowing – their 10 year Treasury yield forecast
range. Their S & P 500 Index target remains unchanged.
The rapid distribution of COVID-19 vaccines
in the United States—now over 3 million shots per day—is bringing us closer to
a fully reopened economy. That expected reopening, combined with a massive
amount of fiscal stimulus has exceeded our earlier expectations, leaving
economic growth forecasts overly pessimistic.
Since the first vaccine candidate was
approved in early December 2020, the United States has administered over 150
million doses and has fully vaccinated 16% of the total population, according
to data from Johns Hopkins. Although cases have risen in some states in recent
weeks, we expect vaccinations to win the race against COVID-19 variants this
spring and facilitate the full reopening of the economy by June. The current
pace of over 3 million shots per day puts herd immunity potentially within
reach by early summer, when more than 70% of adults in the U.S. could
potentially have the antibodies through vaccine or infection.
In addition to the surge in economic
activity that is accompanying the reopening, the federal government has passed
$5 trillion in fiscal stimulus packages in 2020 and 2021 to fight COVID-19 and
mitigate the pandemic’s economic impact. Most recently, President Biden signed
a $1.9 trillion stimulus bill into law on March 11, 2021—the impact of which
has barely been felt.
Yet, more is on the way because a big
infrastructure spending bill will likely be passed over the next four to six
months—almost certainly without Republican votes. On March 31, 2021, President
Joe Biden proposed spending $2.25 trillion on infrastructure over eight years,
though the Democrats may not be able to get all of it done through the
reconciliation process that requires only 50 votes in the Senate (plus the
tie-breaking vote from Vice President Kamala Harris)—but comes with
While it is debatable whether this much
additional government spending is prudent following the historic amount of
debt-financed fiscal support put in place over the past year, there is no
debating that some of that additional spending will boost economic growth (for
those keeping score, the fiscal pandemic relief bill is already over 25% of
GDP). In addition, LPL doesn’t expect the Federal Reserve (Fed) to do anything
this year to slow the economic rebound.
LPL believes the full reopening of the
U.S. economy that we anticipate over the next several months, combined with the
massive stimulus efforts and Fed support, has left our economic growth
forecasts too low. As a result, LPL has raised its forecast for U.S. gross
domestic product (GDP) growth in 2021 to 6.25—6.75%, up from our previous
forecast of 5—5.5%.. At the same time, we have slightly increased our forecasts
for emerging markets (EM) and global growth. Our developed ex-U.S. forecast
remains unchanged, although ongoing COVID-19 spread and a slow vaccine rollout
in continental Europe introduces some downside risk. – Mark
The opinions voiced
in this material are for general information only and are not intended to
provide specific advice or recommendations for any individual. No strategy
assures success or protects against loss. Economic forecasts may not develop as
predicted. Some of this research material has been prepared by LPL Financial.
All indices are unmanaged and may not be invested into directly. Referenced
material: LPL Research Weekly Market Performance dated, 4/5/21. Approved Tracking #: 1-05132829.