By Stringer Asset Management
Our strategic and tactical work suggests that both the market and economic recoveries will persist, albeit at a slower pace. It may take more than a year for the U.S. economy to regain its previous level of activity and employment, but the recovery is well on its way. The economic backdrop is promising, and we think the massive and speedy recovery in the third quarter following a brief, yet steep, economic decline will mark the shortest recession in U.S. history dating back to 1852. The U.S. economy likely expanded by roughly 30% on an annualized basis this past quarter based on the indicators we monitor. Future growth will slow but should continue for the next few years.
The U.S. Federal Reserve’s (the Fed) huge monetary support initially served to stabilize the financial markets and will continue to support a favorable environment for growth. In fact, the Fed’s balance sheet has grown nearly 83% from this point last year, which is twice the pace of the European Central Bank and four times as much as the Bank of Japan. As a result, our most sensitive leading indicators, such as liquidity growth, inflation expectations, and the prices of industrial metals, started to turn upwards in April and May. These trends continue today. In fact, on a year-over-year basis, liquidity growth in the U.S., as measured by narrow money or M1, has grown by almost 45%, which is the fastest pace of any major economy in the world.
As a result, market-based inflation expectations have improved in the U.S. better than in any other country. This suggests that the Fed’s policy actions have not only helped to stabilize the markets, but also are helping to improve economic activity.
As support spreads through the economy more broadly, we