August 3, 2021
The week has opened with more big earnings beats. Expect more of the same.
This puts stocks back on new record highs, but the more aggressive growth in earnings simultaneously puts downward pressure on the P/E multiple on the stock market, making it cheaper even as stock prices are rising.
What about the delta variant? The resurgence in covid doesn't appear to carry the risk of additional lockdowns. The administration has dismissed it. Jay Powell (last week) said the same, and added that each wave, thus far, has tended to have less economic implications.
So we should expect the economic boom to continue and the asset price boom to continue — only further bolstered by another $4.5 trillion coming down the pike from Capitol Hill.
Now, we talked yesterday about the Fed's shifty repositioning on the inflation outlook. They now acknowledge big inflation, but dismiss any concern about it with the argument that the rate-of-change in prices, year-over-year, won't keep rising at the same aggressive pace. That doesn't mean you and I won't be paying more and more for everything, for the foreseeable future.
On that note, yesterday we heard from manufacturers in the ISM report. The manufacturing index had a 14th straight month of expansion in July. And the commentary included all of the same stuff we've heard for many months now: strong demand, low inventories, labor shortages, supply chain reductions, rising raw material prices … have all led to higher labor costs, higher production costs and higher prices being passed along to end consumers. There's no end in sight.