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Greener Shoots…

We just saw a report from the federal government that Q3 GDP growth was in excess of 33% on an annualized basis. That is certainly “very sporty” growth for such a large and mature economy like the U.S. Please remember, however, that this “boomerang” in growth comes after a disastrous second quarter of contraction. Nevertheless, America, like much of the world, is growing again and we expect that to continue. What evidence do we offer?

Let’s first take a look at real estate. The building of homes, apartment and condominium complexes, the maintenance of these dwellings, and the improvements of residences are a very big business. It is also business which has many “ripple effects” throughout the U.S. economy providing demand for plumbing services, electrical services, lawn maintenance services, painting services, etc. So, if real estate is doing well – then many businesses are doing well. In September, the sales of previously owned homes rose to their highest level in 14 years to an annualized rate of 6.54 million units. Inventory levels of unsold homes as measured by months of supply reached a record low and prices reached a record high.

Another interesting data point comes from the restaurant business. As many have heard for months, the restaurant industry has been “crushed” by the COVID pandemic. Dining out became impossible in many locales. Only in certain spots have rules been relaxed enough for restauranteurs to reopen – but only partially. Consequently, thousands of servers, cooks and dishwashers have been laid off. Interestingly and not widely reported, we noted a study done by Yelp, a restaurant reviewing/monitoring service, saying that 2020 restaurant openings are ahead of the years of 2016, 2017 and 2018 – and only just behind the openings of 2019. More than 6,000 eateries opened in each of the months of July, August and September. Again, there is a resurgence of business in one of the hardest hit industries in the U.S.

Much like the real estate business, the restaurant business has “ripple effects” throughout the larger economy (think food provisioners, manufacturers of tables, chairs, linens and cutlery, drink providers, etc.). So as the restaurant business begins to stir, other supporting businesses will begin to rebound.

So far, and admittedly still early in the reporting season, third quarter earnings results have been better than expected by Wall Street.

Source: Bespoke Investment Group

We believe that the trend will continue which will lend important support to stock valuations and investor sentiment.