ALBANY — A prudent financial analyst will often shy away from overselling his optimism, but sometimes that can’t be avoided.
Hugh Johnson, chairman and chief investment officer of Hugh Johnson Advisors in Albany, said he sees present-day indicators painting a “picture perfect” scenario for a positive economy leading into 2021.
The veteran investment strategist listed several factors leading into his positive forecast — contrasting against his bleak outlook from a year ago — in his annual assessment of the economy hosted by the Capital Region Chamber on Thursday, Dec. 3.
“Let me give you the bottom line,” said Johnson. “Last year, I felt really bad. … This year, the story is different.”
Johnson pointed to monetary and fiscal policies out of Washington supporting investors who’ve been placing their money in growth stocks since the brunt of the pandemic emerged in March. Wall Street’s subsequent performance has also shown a bear market — a market on the rise. And, with recent news of a developed COVID-19 vaccine soon to be distributed, there is a lot of room for optimism.
“The financial markets are telling you that, clearly. The important monitoring economic variables are telling you that, also. Never before have I seen such lopsided numbers,” said Johnson, who has more than 40 years of investment experience.
When the pandemic hit the United States in March, the Federal Reserve lowered short-term interest rates from a high of 1.75 percent to .25 percent, adding $2 trillion in excess reserves in order to promote banks to lend. Johnson said the Fed’s actions and the spending from Capitol Hill, has added more liquidity and introduced more growth into the market.
“There is enough money in the U.S. economy to drive both the economy and the financial markets,” Johnson said. “And, I might add, and then some.”
President-elect Joe Biden has promised to increase taxes once he steps into the Oval Office next January. However, it remains to be determined whether or not he can get such a plan past a possible Republican-ruled Senate. Nonetheless, Johnson said the effects from such tax increases would be offset by proposed spending on infrastructure, the environment and health care.
The Yield Curve
Johnson’s forecast of an upcoming recession last year was evident on a yield curve forecasters use to gauge investors’ confidence. Last year, the probability of a recession increased each month throughout 2020. Those numbers are still increasing to a pivotal point next February, where Johnson said there is more than a 30 percent chance of another downturn.
Since a dramatic contraction in April, the economy has grown. The unemployment rate has decreased from a high of more than 14 percent that month to 6.3 percent in October. But, that recovery is slowing. Johnson is not forecasting a recession for next year, but he stressed that Washington must pass another stimulus package to help the economy through the next two quarters.
This year has drawn parallels to a century ago as the world combated against a different pandemic. Johnson has observed more similarities which he said has helped justify his optimistic outlook. The end of a pandemic, low and declining short-term interest rates, large federal government deficits, the end of a bear market and start of a bull market, and the end of a recession and start of an expansion. Aside from the end of World War I, those were the events he used to describe the start of the Roaring ‘20s. All of which, he said, lines up with current events.
According to the Bureau of Labor Statistics, approximately 930,000 jobs were lost across the state this year, 35,000 were lost in Albany, alone. Johnson sees a majority of those jobs recovered within the next two years, indicative of a recovered economy.
“For those who are patient, the economy will be recovering,” Johnson said. “I understand that that’s easier said than done. … I’m not saying this to be Pollyannish. I would leave you very definitely with one positive understanding, the U.S. economy is going to be recovering, continue to recover, through 2021 and 2022.