Zero to Sixty
Tesla recently introduced the fastest mass-produced car in history. The Model S Plaid travels from zero to sixty miles per hour in less than two seconds. It clocks the quarter mile so fast that drag strips may require it to race with a parachute. It sports more horsepower than cars in the Indy 500, and its aerodynamic design slices through the air better than any car ever built.
It is also a wild ride. Before accelerating, passengers must place their head against the headrest to avoid straining their neck. First time drivers are known to emit colorful exclamations.
The U.S. economy is undergoing its own record-breaking acceleration, in the process creating a lively ride for investors. More than 15 million jobs have been created since last spring, a milestone that took nearly seven years following the 2008 recession. Likewise, the bounce back in corporate profits has greatly outpaced past recoveries (see chart), leading to a near doubling of stock prices from last year’s low.
The reason for the economy’s performance is no secret. The distribution of vaccines (daily COVID cases are down an astounding 95% from their January2021 peak) and government stimulus have turbocharged the recovery. And unlike in 2008 when the banking system nearly collapsed, the economy today faces few major roadblocks.
Demand for goods and services has sped up so quickly, in fact, that some investors fear the economic equivalent of an engine overheating: higher inflation. While we do not dismiss the risk of inflation, we think it is a mistake to dwell on it. Most of today’s worrisome economic news is a byproduct of extraordinarily good news, and likely temporary. Picture a car spinning its wheels as it goes from zero to sixty in seconds flat.
In this quarter’s report, we review recent market performance, address topics that are top of mind for investors, and provide our outlook for the second half of the year. Buckle up!