Analyst: Pandemic Economic Recovery 'May Last Another 3-6 Months'

Investors are weighing a tremendous amount of uncertainty heading into 2022 with concerns surrounding supply chain disruptions, elevated inflation, Federal Reserve tightening and the Omicron variant of COVID-19.

Merk Investments portfolio manager Nick Reece just released his updated economic outlook for the month of December, and said the U.S. economic recovery will continue for at least three more months.

Early indications suggest the Omicron variant is weaker than previous variants in terms of virility, Reece said. However, he believes investors should be prepared for another wave of seasonal U.S. COVID-19 infections in the near-term.

Related Link: US Economy Adds Just 210,000 Jobs In November: 6 Experts React To Huge Payroll Miss

Fortunately, Reece said the overall economic impact of the virus appears to be weakening through a combination of mutations, vaccinations and therapeutics.

Meanwhile, U.S. economic demand remains strong and continues to be constrained by supply chain disruptions.

Monetary Policy: Given Fed Chair Jerome Powell’s recent testimony, Reece said the Fed is likely to ramp up its taper timeline at its December meeting. The market is currently pricing in five rate hikes through the end of 2023, which would put the fed funds rate at between 1.25% and 1.5% heading into 2024.

Reece also said investors should keep the November jobs miss in perspective. While the headline number of +210,000 jobs fell well short of expectations for +550,000 jobs, the economy added 778,000 jobs in November on a non-seasonally adjusted basis.

In addition, Reece said the three-month moving average of non-seasonally adjusted U.S. job gains is 997,000, a clear indication that the economy is steadily improving.

What To Expect In 2022: Looking ahead to 2022, Reece said investors can expect a tightening of U.S. fiscal policy, while China, on the other hand, may take measures to ease its monetary policy to support its slowing economy.

“Depending on the course of the virus and mitigation measures, the recovery phase (to get back to pre-pandemic levels of real economic activity) may last another 3-6 months,” Reece concluded. “The medium to longer-term outlook generally remains positive.”

Benzinga’s Take: Inflation, supply chains, The Fed and the Omicron variant have created some extreme volatility in the SPDR S&P 500 ETF Trust SPY in the closing months of 2021. However, underlying economic growth trends remain positive, which should be good news for investors from a fundamental standpoint.

Also See: How Dangerous Is "Omicron" COVID Variant For The Stock Bulls And Other Capital Markets?

Photo: Courtesy of Pixabay.