Is This as Good as it Gets? – May Commentary

The first quarter offered lots of “candy” (government spending) and no “spinach” (tax increases).  But that idea started changing in April with government policy shifts: the unveiling of big infrastructure spending (spread over 8 to 10 years), plus new large-dollar child spending programs; both to be funded with higher taxes – corporate and individual.  Taxes are oriented as an aggressive path to pay for massive spending.  At present, the combination of extraordinary fiscal spending and monetary stimulus is pulling forward demand, output, revenue, profitability and investment (perhaps stealing it from 2022 and maybe beyond; called a growth hole).  After such a strong start to the year, and remarkable 12 month recovery, the biggest hurdle the market faces is high expectations and crowded positioning.  At present, there appears to be a peak in positive data and eager market participation (number of stocks rising at the same time), usually found in the first third of a new bull market run.  With so much good news already priced into stocks, any bad news or “miss” could spark near-term volatility.  So let’s ask… Is this as good as it gets?

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