A productivity boom is driving “the Roaring 2020s,” says Yardeni Research president Ed Yardeni, in a recent interview with Barrons.
Despite inflation and the Delta variant, the market is up 10% since May 1, and Yardeni says that the remarkable recovery is due to companies dealing with the pandemic by cutting costs on inventories, boosting profit margins along wth sales. Inventories remain lean while there’s still a backlog of orders, creating lots of potential for the economy to still grow and generate earnings. Not to mention all the liquidity that was poured into the economy at the start of the pandemic and still hasn’t been spent.
Meanwhile, Yardeni argues, “I’m in the Roaring 2020s camp. We’re in the early phase of a dramatic productivity boom,” where productivity growth could double from 2% to 4% by 2025 and stay there. And because the labor market remains tight, this increased productivity could cause wages to rise higher than prices. In that situation, inflation “will be transitory,” Yardeni says, “[and] won’t cause the kind of wage/price spiral we had in the ’70s.”
Yardeni, whose most recent book is In Praise of Profits, advises investors to look for companies that provide and use technology and medtech, to overweight U.S. stocks, and avoid cryptocurrencies.
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