by Gary Alexander

March 2, 2021

Until last Thursday, the stock market was practically shouting in our doubting ears: “There’s a big recovery coming!” But we haven’t believed it. We have doubted the market’s rapid rise, saying it is “overbought” and clearly in a manic state, ripe for a correction. But maybe the market is right.

Major stock indexes have set 32 record highs in 2021 so far, including last Wednesday’s 424-point surge in the Dow, breaching 32,000 at 1:45 pm before falling 1000 points Thursday and Friday. Even if that is the start of a much-needed breather, the market often looks six months ahead, so it sees a robust first half.

One analyst making such a case is Ethan Harris, an economist at Bank of America Global Research. In “Fasten your seatbelts – The case for a roaring economic recovery,” Harris lists four ways in which this recovery should be faster than 2009, according to a summary by Yahoo Finance reporter Myles Udland:

  1. The stimulus in 2009 was late, small and faded too fast. Today’s stimulus has been timely, huge and very persistent.
  2. In a COVID-19 world, much of the stimulus effect has been deferred until the economy reopens.
  3. The COVID-19 crisis should leave much smaller economic scars than the biggest banking and real estate crisis in modern history (in 2008).
  4. Household balance sheets were deeply damaged in the last cycle; they are in great shape today.

In addition, according to the Congressional Budget Office (CBO), the economy did not reach full employment after the 2008-09 recession until 2017 – almost eight years later, but Harris says, “This time we expect full employment by 3Q 2022, or nine quarters into the recovery. Fasten your seatbelts.”

The year is already off to a torrid start. Retail sales were up 5.3% in January, month over month, after economists expected only 1.2% growth. Sales of existing homes rose 0.6% after economists polled by Reuters forecasted a 1.5% decline in January. The 12-month year-over-year sales total is +23.7% to 6.7 million units. The median price is up 14.8% y/y. The real estate market is extremely tight. At January’s pace, it would take under two months to exhaust the current inventory (6-7 months is normal).

Fourth-quarter 2020 GDP was just upgraded to +4.1% (annualized and after inflation), and the Atlanta Fed’s GDPNow real-time model sees +9.6% growth for the first quarter of 2021, more than double its forecast of 4.5% on February 10. Industrial production is up 17.4% since last April’s low, and its manufacturing component is up 23.8% from the April low and down only 1% year-over-year. Industrial metals, particularly copper, are a key barometer of industrial recovery, and they are pointing sharply up.

Raw Industrials and Copper Prices Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Turning to stocks, corporations have become lean and mean (productive) with expanding profit margins. With nearly 90% of S&P 500 companies having reported their revenues and earnings for Q4-2020, sales have beaten expectations by 2.9%, and earnings have beaten estimates by 17.3%. An amazing 81% of the reporting companies have delivered positive earnings surprises, and 75% have beaten revenue forecasts.

Consumers have paid off much of their debt and are flush with cash, ready to spend when the coast is clear. Economist Ed Yardeni reports that consumer credit is 118% lower y/y as of last December. The personal savings rate was 13.7% in December, almost double the 7.6% rate a year ago. Let’s go shopping!

But What About COVID-19? Just Watch the Data & Ignore Dr. Doom

I’ve just finished a book called “The Pandemic Century” by Mark Honigsbaum. It was written just as COVID was striking (the final chapter, going to press last March, called COVID-19 “Disease X”), but look who shows up on page 213 during the early years of the AIDS epidemic in 1983 – Dr. Doomsday!

After a couple of pages talking about the paranoia surrounding the AIDS epidemic, the author writes:

“Worse, in an accompanying editorial in the Journal of the American Medical Association, Anthony Fauci, the head of the NIAID [National Institute of Allergy and Infectious Diseases] and the leading federal AIDS researcher, compounded the offense by stating there was a ‘possibility that routine close contact, as within a family household’ could spread the disease. In case the press failed to get the message, the American Medical Association also issued a press release headlined, ‘Evidence Suggests Household Contact May Transmit AIDS,’ in which it quoted Fauci as saying that the possibility of ‘non-sexual, non-blood borne transmission’ had ‘enormous implications’ and that ‘If routine close contact can spread the disease, AIDS takes on an entirely new dimension.”

“The release was immediately taken up by the Associated Press, who interpreted it to mean that the general population was at greater risk of AIDS than had previously been thought, and flawed versions of the AP story were soon running in USA Today and other newspapers. Within days, officials in San Francisco began distributing face masks and rubber gloves to police and fire officers.”

From his long-time perch atop the NAIAD, Dr. Fauci often pushed the panic button prematurely:

  • In 2004, Dr. Fauci warned of the “massive person to person” spread of Avian flu (H5N1). In the end, that disease killed only 440 worldwide.
  • In 2016, Dr. Fauci said the Zika virus demanded “billions” in U.S. taxpayer funds, but Zika burned out after barely touching only two states – without the billions spent.

Throughout the current Covid crisis, Dr. Fauci has made so many false predictions and policy reversals that it would take several pages to list them all here, yet we are continually told to “follow the science.” What science? All I see is conjecture, all weighted to the scary side, and a press willingly lapping it all up.

Here’s the good news. The New Year has started with a dramatic decline in cases and hospitalizations. The rate of hospitalizations for those aged 85 and older dropped 81% from January to February, according to Bloomberg. Just a guess – I’ll bet you haven’t heard that data point from any cable TV news network.

Covid Hospital Admissions Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Will this good news stop the alarmists from prescribing face masks until the last dog dies? Probably not. According to a new poll of 2,000 Americans contacted by the Ohio State Medical Center, “nearly three-quarters (72%) of Americans plan to continue to wear masks in public, four out of five (80%) will still avoid crowds and 90% plan to keep up frequent handwashing and sanitizer use after COVID-19.”

At one level, this is disturbing – visualizing a 2022 Thanksgiving dinner seated six feet apart, nobody hugging, and face masks between bites, but then I think about the accuracy of such polls in recent years. This is no more than people telling pollsters what they want to hear and what makes them sound virtuous. “Of course, I’ll wash my hands, mother. I’m a good boy, or girl. I’ll always do what the doctor orders!”

In 1852, Charles MacKay wrote a book about historical manias, titled Extraordinary Popular Delusions and the Madness of Crowds. You can read it at your leisure through this link, for free. In it, he comes to the conclusion that people “go mad in herds, while they only recover their senses slowly, one by one.”

If his book were written in 2052, Covid might be a chapter. I can’t wait for the day when this is history.

All content above represents the opinion of Gary Alexander of Navellier & Associates, Inc.

Please see important disclosures below.

Also In This Issue

A Look Ahead by Louis Navellier
Bonds Offer No Real Competition to Stocks

Income Mail by Bryan Perry
Staying the Course Amid the Volatility

Growth Mail by Gary Alexander
The Case for a Rapid Economic Rebound in 2021

Global Mail by Ivan Martchev
The Fed Would Love a 2% 10-Year Treasury

Sector Spotlight by Jason Bodner
Is the Stock Market Beginning to Crack?

View Full Archive
Read Past Issues Here

About The Author

Gary Alexander
SENIOR EDITOR

Gary Alexander has been Senior Writer at Navellier since 2009.  He edits Navellier’s weekly Marketmail and writes a weekly Growth Mail column, in which he uses market history to support the case for growth stocks.  For the previous 20 years before joining Navellier, he was Senior Executive Editor at InvestorPlace Media (formerly Phillips Publishing), where he worked with several leading investment analysts, including Louis Navellier (since 1997), helping launch Louis Navellier’s Blue Chip Growth and Global Growth newsletters.

Prior to that, Gary edited Wealth Magazine and Gold Newsletter and wrote various investment research reports for Jefferson Financial in New Orleans in the 1980s.  He began his financial newsletter career with KCI Communications in 1980, where he served as consulting editor for Personal Finance newsletter while serving as general manager of KCI’s Alexandria House book division.  Before that, he covered the economics beat for news magazines. All content of “Growth Mail” represents the opinion of Gary Alexander

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