Inside this Issue:
- The GameStop Drama: Another Worrying Sign for Markets?
- The Virus: Signs of Both Hope and Despair
- Q4 Earnings: Big Tech Thrills, Elon’s Musings and other Highlights
- Q4 GDP: The Recovery Continues
- The Fed: Loose for the Long Run
- Debate: Bitcoin Yes or No?
- Labor Markets: The Rich Are Getting Richer
- Amazon: More Jobs for Boston
- Housing: More Signs of Strength, Phoenix Rising
- A Look Back: Origins of the Opioid Crisis
Quote of the Week
“I personally believe that technology can unlock progress and opportunity and that the full story of the Internet has not yet been written” -Facebook CEO Mark Zuckerberg
Ultimately, it’s the virus that will shape the path of economic recovery. Well, there’s some very good news. And there’s some very troubling news. Thankfully, U.S. Covid cases are dropping sharply, and so are hospitalizations and deaths. Critically, there’s a new vaccine to fight the virus, courtesy of Johnson & Johnson. Treatments are advancing as well. But dangerously, new variants of the virus are making it a tougher enemy.
To some extent, the U.S. economy is adapting. During the final quarter of 2020, GDP grew at an annual rate of 4%, which builds upon the third quarter’s 33% resurgence. Still, the economy isn’t back to where it was before the crisis. GDP for 2020 was about 3.5% smaller than it was in 2019. There’s certainly no shortage of prospering companies, not least in the technology sector. As this week’s chart shows below, housing is the country’s single largest sector, and it too is thriving. Unfortunately, the country’s next largest sector—state and local government (think of all those health and education jobs)—is hurting. And so of course, are any sectors involving face-to-face contact, from restaurant dining to air travel.
Household incomes weren’t as propped up by government aid in Q4 as they were in Q3. Nevertheless, consumer spending is holding up pretty well, albeit with altered consumption patterns (fewer restaurant meals and airline tickets but more iPhones and home furnishings). Savings are unusually high, which bodes well for the recovery. In addition, a late-December stimulus worth some $900b is now making its way through the economy. And still, no meaningful signs of inflation. So no pressure on the Fed to retighten the monetary screws.
There are, to be sure, concerns about the mayhem on Wall Street. There’s the drama unfolding between chatroom warriors and Wall Street hedge funds (the whole world now knows about an obscure company called GameStop). More general are concerns about irrational exuberance in the stock market—and the bond market, and the commodity market, and the Bitcoin market, and so on). Even if it’s not an overpriced asset market, rising prices trigger other concerns, including their tendency to worsen inequality. In the Markets section below is a stunning set of facts about the current labor market: Employment is up 1% for high-wage workers, down 6% for middle-wage workers and down 25% (!) for low-wage workers. Sounds like that might be a cause of many current social and political dysfunctions.
But again, the dysfunction that matters most right now is what the virus is doing. Can it be stopped? How soon?
This week brings another busy round of earnings. Amazon and Google will surely tell more tales of good fortune. Pfizer might share updates about how well its vaccine fights new strains of Covid. ExxonMobil needs to convince investors it’s prepared for what seems the dawning of the oil age. Ford will surely field questions about that too. Just how busy is UPS delivering all that e-commerce? McKesson and AmerisourceBergen are lesser-known names with massive roles in distributing pharmaceuticals, including vaccines. Solar Winds has a lot to answer about the giant hack it experienced. Ask Match.com about the dating scene. Speaking of which, maybe Hershey will have some ideas.