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September 2, 2021
The onset and spread this summer of the delta variant of Covid-19 will slow, but not stop, the U.S. economic expansion. Given some anecdotal evidence of greater spending caution in the hardest hit regions of the country, strong consumer balance sheets and the need for businesses to increase production to match demand will allow an effective transition from government-supported growth to an economy where growth is largely driven by the private sector.
Infection rates in Europe and Japan appear to be peaking which should allow the somewhat aborted economic reopening process to resume in many of these countries. Supply chain bottlenecks continue to impair industrial production, but they are expected to abate as we approach the end of the year with only limited permanent scarring from higher input costs.
The regulatory crackdown in China will have a much longer lasting impact on the domestic and global economy than the effect of Covid-19. The government ostensibly is looking to prevent unfair competition and redistribute wealth with their “Common Prosperity” initiatives. This greater imposition of government authority on the economy should slow longer term GDP growth from the current 6% level to 3-4% by 2023.
While investors continue to confront the implications of a persistent pandemic, prospective tax increases, supply chain constraints, and greater regulation in China, above trend earnings growth with continued historic monetary accommodation has proven a much more powerful motivation in driving equity prices higher. Markets will monitor the beginning and ultimate path of monetary tightening, but the current environment remains favorable for risk assets.
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Ben is the Chief Investment Officer and a Partner in the New York office. He leads the firm’s Investment Committee and is a member of...
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