Schwab Market Perspective: Beneath the Surface

To get the facts, sometimes you need to look beneath the surface. For example, although the U.S. economic growth rate may be peaking, economic growth itself likely isn’t. Similarly, while it’s natural to wonder how global central banks will manage rising inflation, investors may want to focus on what China’s government is doing to rein in commodity prices. Even in the Treasury bond market, recent calm may be hiding risk below the surface.

U.S. stocks and economy: Peak growth rates

Some key economic data—notably income, spending, and home sales—have cooled lately, reflecting the waning effect of direct government fiscal aid and the fact that we’re likely in an environment of peak economic growth rates. Importantly, that doesn’t necessarily mean we are at peak growth in level terms.

The distinction is crucial, given we continue to see staggering rates of change for data in year-over-year terms. For example, capital goods spending has picked up considerably since the depths of the pandemic. Growth in new orders for non-defense-related capital goods, at 27%, has never been stronger.

Capital spending continuing to break out and strengthen

Source: Charles Schwab, Bloomberg, as of April 30, 2021.

The surging growth rate confirms that business spending has indeed come back to life—aided by companies’ ability to weather the COVID-19 pandemic, the immense amount of aid provided by the federal government, and the more-than-full recovery in goods consumption throughout the past year.