Quarterly Review

Rebounding: on the Court, in the Economy

Back to Insights  Detailed Review  

Charles Barkley, who for three straight years held the NBA record in offensive rebounding, famously said, “I always laugh when people ask me about rebounding techniques. I’ve got a technique. It’s called just go get the damn ball.” While Barkley’s rebound and our current economic one are distinctly different animals, his path to success still applies.

Our economic recovery is, no doubt, dependent on “herd immunity” (or something close to it). That’s when enough Americans become resistant to COVID-19 through prior illness or by choosing to “just go get” vaccinated. Estimates vary on how long protection lasts either way, but experts agree community immunity is key to normalization. Then, the ripple effect begins; people leave home to eat, drive, shop and be entertained. They start to spend the cash balances accumulating in their accounts (stimulus checks certainly help). Long suffering businesses begin to rehire the nearly 10 million Americans who remain unemployed. Inflation and interest rates…? Those will surely impact recovery; we’ll discuss differing opinions below. Suffice to say, if COVID infections decline as anticipated and consumer confidence grows, as it has, a change in investor preference is likely. In fact, it’s already evident. Let’s review the factors:


The recently passed American Rescue Plan Act spreads $1.9 trillion across the national economy, including $1,400 direct payments to most taxpayers. Like the Cares Act passed last year, the money is intended to offset the pandemic’s negative economic impact. However, this new package is more wide reaching and flexible, expanding payments to include a child tax credit and a weekly boost to unemployment benefits. State and local governments can use their part of the funds to invest in water, sewer, and broadband internet infrastructure… projects that would far outlive the pandemic. Whether for or against the plan, the money is out there and the scale is massive, causing GDP (Gross Domestic Product – the value of finished goods and services) growth estimates of up to 10% for the first two quarters of 2021.


Interest rates are slowly reaching upward while prices (food, gas, lumber, housing…) have risen, some dramatically, over the last year. At Bahl & Gaynor, we believe this environment (the rising market-based interest rates) is perhaps the most important variable impacting investments in the foreseeable future. We’re not alone, many in the financial community anticipate some form of significant inflation in the future. However, in recent testimony before Congress, Federal Reserve Chairman Jerome Powell dispelled the possibility, calling any disruption “temporary.” One indication investors don’t share his view:  the sharp sell-off in government bonds since the start of the year. (Bonds tend to lose value when inflation expectations rise.)

Value vs. Growth

Generally speaking, higher rates mean higher discounting of future profits by growth companies, which exerts downward pressure on their valuations (Note: many of the popular growth stocks won’t make a profit or pay a dividend for years, which magnifies this discounting effect). Compare this to value-oriented equities which tend to outperform when interest rates and (modest) inflation are on the rise; both are indicators of an improving economy, post-recession, as we’ve seen in the quarter that just ended.

Where to Turn?

Last year we endured a pandemic and an economic recession, and yet the net worth of US households is at an all-time high. The main driver:  the stock market, with the DJIA and S&P 500 hitting all-time highs in March. The conversation continues about an overinflated market, along with speculation the bubble will burst. There is, at present, evidence the air is leaking with long-term investors turning their backs on the uncertainties of the last four quarters.1 We at Bahl & Gaynor are ready, offering risk averse, consistent, inflation beating streams of rising dividend income, coupled with relative price stability during general periods of market volatility. Bottom line:  for more than 30 years we’ve believed “dividends pay dividends.” Charles Barkley tells us: “The only difference between a good shot and a bad shot is if it goes in or not.” We hit the mark when we continuously help you grow your hard-earned wealth and achieve your goals.

1Wall Street Journal, March 25th, 2021

By Caitlin Ostroff and Michael Wursthorn


“Signs of a resurgent economy, rising interest rates and nascent inflation have spurred a massive rotation into so-called value stocks that benefit from an economic rebound—such as manufacturers, banks and retailers. Meanwhile, investors have been pulling money out of tech companies, viewing those high-price stocks as particularly vulnerable to the shifting economic winds.”