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Friday 20th August 2021
Further signs of summer impotence for economic growth
On Thursday morning, we realized that health challenges were emerging from economic expansion, largely due to the still-rampant COVID-19 pandemic.
These signs continued until the end of this week.
After the Goldman Sachs team highlighted that at least two Wall Street companies either lowered or warned their economic growth forecasts, the Goldman Sachs team followed suit this week with a cut in its third-quarter outlook for gross domestic product (GDP).
Goldman’s business team, led by Jan Hatzius, said in a statement to its clients that third-quarter growth should be at an annualized rate of 5.5%, well below the 9% the company had previously forecast.
The Oxford Economics team also released their latest weekly recovery tracker, which showed a decline for the week ending August 6th. Almost all components of the index cooled off.
“Economic momentum remains strong, but contractions in five of the six sub-components signal that if we move beyond peak growth, profits will be harder to come by,” the company said.
“Greater consumer caution weakened demand and mobility, which fell to multi-week lows,” the company said. “Employment fell, production was curtailed and the health indicator fell due to the rising contagion of the Delta variant. Financial conditions eased as stocks hit new records and interest rates stayed near historic lows.”
The economic recovery has stalled, according to the latest data from Oxford Economics. (Source: Oxford Economics)
In recent trading sessions we have seen increasing volatility in the stock markets, but as the Oxford data showed, the S&P 500 (^ GSPC) is still less than 3% off a record high.
And while there are signs that investors are concerned about growth – the fall in oil prices and the underperformance of cyclical sectors like Materials (XLB) and Financials (XLF) stand out in recent sessions – when we learn about the stock have been in the market for the past year and a half, investors are willing to overlook short-term concerns about COVID.
The story goes on
Furthermore, this short-term slowdown and challenge to the economy towards the end of summer is not seen as a setback to the overall recovery from the pandemic that we have been in since April 2020. While Goldman. its forecast for the third quarter was lowered, and its forecast for growth in the fourth quarter was raised by 1 percentage point, a sign of a delayed but not derailed recovery.
Or as Pantheon Macroeconomics’ Ian Shepherdson best put it in a note earlier this week: “We very much doubt Delta poses an existential threat to economic recovery.” And investors agree.
By Myles Udland, reporter and presenter for Yahoo Finance Live. Follow him at @MylesUdland
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What can be seen today
6:45 am ET: Deer & Co. (FROM) is expected to report adjusted earnings of $ 4.56 per share on revenue of $ 10.26 billion
6:45 am ET: Foot locker (FL) is expected to report adjusted earnings of $ 1.01 per share on revenue of $ 2.09 billion
J&J appoints Joaquin Duato as CEO [Reuters]
Musk says Tesla will likely launch a humanoid robot prototype next year [Reuters]
FTC is re-filing antitrust lawsuit against Facebook [Yahoo Finance]
China passes new data protection law that comes into effect on November 1st [Reuters]
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