The second quarter wrapped up with reports of largely upbeat economic data, coupled with another new record high for stock prices. The Dow Jones Industrial Average found itself on the doorstep of 35,000, while every stock sector of the S&P 500 generated positive returns for the first six months of the year (with energy stocks leading the way up 45%). On the economically important job front, the June employment report saw 850,000 positions added which is the largest monthly increase this year. According to the Congressional Budget Office, we are now on pace to recover all the jobs lost during the pandemic by mid-2022, which would be an incredible feat.
Now fifteen months removed from the stock market lows in March of 2020, the economic recovery is firmly underway in the U.S. The business rebound has been so strong as to cause levels of inflation not seen since 2009. Knowing the Federal Reserve’s dual mandate to maintain full employment and stable prices in the economy, Fed Chair Jerome Powell has been considering policy responses to deal with building momentum in the economy. At the June 16th U.S. Federal Open Market Committee (FOMC) meeting, the Fed communicated that they would leave the federal funds rate near zero and not try to temper the inflationary price spikes nor slow the rapidly growing U.S. economy for the time being. Overseas, China is enjoying its fifth consecutive quarter of positive business growth, while being able to avoid additional travel restrictions thanks in large part to a pick-up in COVID vaccinations. Other countries, like India for example, are having a greater struggle with the pandemic and the related economic hardships. China was one of the first countries to emerge from the pandemic lockdowns and is now passing the economic baton to the Eurozone, in hopes that these nations can provide the next boost to the world economy.
Much of the U.S. economic strength in the first half of the year can be attributed to government administered pandemic relief, including fiscal stimulus as well as income provided by the enhanced unemployment insurance programs. Looking ahead to the second half of the year, we expect economic growth to slow from the current double-digit pace as business conditions normalize. Around the world, businesses will have to sort out supply bottlenecks and contend with the ever-tightening labor market. New business regulations are also in the works, coupled with support for higher corporate taxes. Both the opportunities and challenges ahead for corporations are clear, thus putting their propensity to innovate up to a true test.