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Six months into the pandemic and just a few months away from the 2020 presidential election, the markets are at the mercy of macroeconomic and political developments. Now that the Biden-Harris campaign is in full swing, we can expect to see a steady stream of policy developments that could have a ripple effect on the economy, along with market shifts from every presidential tweet and news from Congress on the fate of the next stimulus bill.
While there is much uncertainty in both the country and the world right now, I have been keeping a close eye on the data, and the numbers seem encouraging. In fact, recent performance in the retail sales segment suggests we may see third-quarter GDP growth of 15-20%.
Here's my take on the current state of affairs:
1. The stimulus appears to be working.
In times like these, it's easy to get bogged down by pessimism. However, the economic data on housing, auto, retail sales and manufacturing — both industrial production and ISM Manufacturing Index new orders — have actually been improving over the past few weeks, and all signs point to this being a result of the various stimulus efforts put forth by Washington and the Federal Reserve.
Currently, 44% of U.S. GDP is the direct result of fiscal and monetary policy, compared to the 5% we saw following the 2008 economic crisis. Money supply has grown over 30% this year — that's an amazing amount of liquidity in the system and is likely one of the reasons why the market is going up in spite of the ongoing pandemic.
It's these stimulus efforts put in place, which began in March, that are leading to a stronger recovery in the economy and profits. While I don't expect the economy to continue to recover at this pace (I am watching virus cases, reopenings, treatments and vaccine news), the reality is I don't believe we will go back to where we were in March — either on the economic front or in the equity market.
In fact, quite the opposite: I expect a gradual recovery in the economy in the second half of 2020 and into 2021. This will, in turn, lift profits (I expect them to come in stronger than expectations) and lead to higher equity prices. Remember, the markets are forward-looking indicators.
2. Pockets of the economy are doing well, but further action is needed.
Unemployment, while improving, still remains at a record high, but there are a few sections of the economy doing better than expected. Housing statistics remain impressive, with starts up an incredible 22% in the past month while permits grew nearly 19%. Housing sentiment, as measured by the National Association of Home Builders (NAHB) Index, shows it at the highest level since 1998. Auto sales remain on the upswing and retail sales have been better than expected. There are the haves and have-nots in the consumer sector, with online, essential stores and home improvement the clear beneficiaries.
Stephanie Link joined Hightower in June as chief investment strategist and portfolio manager. She leads Hightower's Investment Solutions group, which provides outsourced chief investment officer (OCIO) services, model portfolios, separately management accounts (SMAs), investment research and due diligence for Hightower advisors. Prior to joining Hightower, Link was the senior managing director and head of global equities research at Nuveen. Follow Stephanie Link on Twitter: 
