Personal Consumption Expenditures
Extremely loose monetary and fiscal policies during the pandemic have created distortions and disequilibria throughout the economy. The most visible bubbles may be in financial markets, evidenced by the boundless valuations applied to visionary startups and the speculative fascination for digital assets of all types. This report examines a bubble of a different kind; not a financial bubble but rather a real-world bubble in “fun”. Producers of recreational goods are flourishing during the pandemic, posting massive sales gains and a tripling of net income, yet selling for miniscule valuations.
The Dow Jones Transportation Average has recently notched fresh all-time highs. Following a sizable relative performance dip earlier in the year, the Transports’ relative strength has recovered and moved to new 2020 highs (Chart 1). Still, compared to the broad market, the index’s YTD return appears fairly unremarkable, outpacing the S&P 500 by about 3%.