With the next stimulus package expected to be approved in a matter of weeks, the pieces needed to give the economy an added boost are nearly in place. Multiple indicators point to a recovery already underway, and sectors that are still struggling — such as travel, leisure, dining, entertainment and hospitality — are poised to benefit.
More 64 million Americans have now received the COVID-19 vaccine, according to data from the Centers for Disease Control and Prevention. While the rollout has been far from smooth, it's happening. In the coming months, consumers will re-emerge and resume normal activities such as shopping, traveling and eating out. The U.S. personal savings rate is currently at 20.5%, compared with the historical norm of 5%. This adds up to significant pent-up demand that will translate into spending.
The amount of money the U.S. is spending to help the country recover is staggering. When you add together the fiscal and monetary stimulus over the past 11 months to the next $1.9 trillion package, it amounts to 55% of U.S. GDP. To put this into perspective, during the last financial crisis in 2008, fiscal and monetary stimulus accounted for just 5% of U.S. GDP.
As the country awaits the next round of stimulus checks, there are several macroeconomic factors to consider when allocating portfolios.
Data and Leading Indicators Point to Recovery
Retail sales for January jumped 5.3% year-over-year, which is highly noteworthy, considering the expectation was for a 1.2% rise. Industrial production and capacity utilization rates have beaten expectations over the last three months, and new housing permits are also at a 15-year high, up 22.5% year-over-year.
Another sign that the economy is heading in the right direction is commodities prices, which act as a leading indicator of economic activity. Copper neared a 10-year high in the last few weeks, a strong sign of expectations for global growth, improved profits, increased inflation and upside in the equities market. Other metals are telling us the same thing: Aluminum is up 50% from March lows, and steel is up 173%.
When considering inflation expectations, just look at the bond market. Over the last month, the 10-year bond yield has gone up 36 basis points, a remarkable jump considering yields typically move by one to three basis points at a time. Thirty-six basis points in a month is a big move, indicating that market participants anticipate a rise in inflation.
Stephanie Link is chief investment strategist and portfolio manager at the national wealth management firm Hightower. She leads the firm's Investment Solutions Group, which specializes in outsourced chief investment officer services, model portfolios, separately managed accounts, investment research and due diligence for Hightower advisors. Follow Stephanie on LinkedIn and Twitter @Stephanie_Link. 
