Hi, I'm Linda Duessel, Senior Equity Strategist at Federated Hermes.
Is the equity market paying too much attention to monthly numbers at the risk of ignoring supportive fundamentals over the next 12 months?
We watch the economic statistics all the time, that's that's our job. And, and the media loves to talk about outsized changes, particularly changes year over year. Year over year, one year ago, we were shut down. So what did we find out in recent days? The consumer price index, the most popular level of inflation, the gauge that we look at, why, it rose by the highest amount since 1981. 'How shocking is that?' says the media. This is just after the April jobs report. We in our business, we look very, very carefully. That's one of the most important numbers that we look at month by month. The April jobs figure missed expectations by the largest amount since 1998. How can this all be? One number's too strong, one number's too weak, to which I say let's remember the context in which we see all this, how very, very difficult is it for, for forecasters to try and imagine what numbers will be. Forecasters like to work off of trend. We seriously rocked our boat. We rocked our boat in this economy and indeed around the world, more than ever in our lifetime. To go from closing, having a closed economy, to then having a V-shaped recovery. Those are tough comparisons to make.
And so I would caution that we should not listen to these figures as carefully as people do. The highest on record, you know, the greatest since whatever. Rather, the most common sensical view that I have seen and I think it's important to look at is look at the trend that we were on at the end of 2019, which by the way, 2019 saw record corporate profits of our country, it saw record profit margins and then look into 2022 estimates. I realize those are estimates, I realize it's a forward-looking situation but 2020 was an economy in shambles. 2021 is recovering and dramatically. That is a rocking of the boat. If we look at 2022 estimates, which indeed, we will be doing starting the second half of this year. And the expectation is by the way, that looking into 2022, you will see even higher profit margins for corporate America and even greater profits and revenues in the United States. So it's a reason to be bullish.
Disclosure: Views are as of May 14, 2021 and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector. Past performance is no guarantee of future results. 21-40256 Federated Equity Management Company of Pennsylvania