Goldman says that the U.S. Economy is finally seeing growth again but they warn that this could be bad for stocks.
The stimulus is restarting the economy, as it was intended to do. Businesses are opening and people are spending. But, this jump start won’t last forever. Goldman Sachs thinks that it will reach its peak in the coming weeks. When it slows down, it will lead to “paltry” stock returns for the rest of the year.
Goldman Sachs analysts said that our gross domestic product will grow by an annualized 10.5% rate in the second quarter. If this comes true, this is the best growth we’ve experienced since 1978.
The slowing down will start by the third quarter and likely last next year.
An event like this, analysts suggest, is usually coupled with weaker stock returns and higher market volatility.
There seem to be some inconsistencies. There are reports of strong U.S. job growth in March fueling optimism for the recovery. The gain of 916,000 jobs was the biggest since August, and unemployment fell to 6 percent. Barring a setback in fighting the virus, the outlook is bullish.
However, do remember that the government has been pumping money into the economy.
We can’t sustain this. At some point, it has to stop or the US dollar will be worth nothing.
When that happens, growth will slow down even though people are regaining their employment.
Employment is only one part of the equation. The other is confidence in the economy.
The market is in overdrive because people are trading. People are trading because… well because there is nothing else to do. Businesses are closed, jobs aren’t available, and Covid19 is still reigning supreme.
Once confidence is restored, more people are likely to go back into regular employment, rather than playing the stock market. It’s a less risky way to make money.
Trillions of dollars in unprecedented fiscal stimulus during the pandemic have helped lift the stock market to new highs over the past year. Though President Biden’s $2.3 trillion infrastructure plan could add even more fuel to the economy, Anu Gaggar, a senior investment analyst for Commonwealth Financial Network, said that “investors have been quick to recognize [that] much of the upside has already been priced.”
As always, this is not to say you should stop investing in the market. Remember, diversification. Diversification. Diversification.
Stocks. Bonds. Etfs. even cash. And when it comes to precious metals, we got you.