Last week we noted that there was a reasonable chance that for the first time since the COVID-19 crisis began, the Jamaican stock market might outperform the US stock market in the second half of this year. The logic behind this thought was that the “everything” rally in the US, in part due to the huge amount of liquidity pumped into the US capital market by the Federal Reserve, had made nearly all US asset prices expensive, particularly the five key “bubblets” identified by Morgan Stanley Global strategist Ruchir Sharma which we covered in our article two weeks ago.

Jamaica’s stock market, on the other hand, has not yet recovered to its pre-COVID-19 peak, and is significantly cheaper, despite its key short-term interest rate only marginally above the US at half of one per cent. In the short term, meaning the next six to 12 months, we may now have a similar rate of inflation to that of the US, with the latter now projected by many as likely to be in the four to five per cent range.

An important caveat to this view of Jamaica’s potential stock market outperformance relative to the US, however, is that it assumed the recovery of our tourism industry in the second half of this year. Prior to the arrival of the new Delta variant, it seemed likely that our local tourism industry would see an extremely strong recovery by year end, possibly exceeding the 2019 winter season, as very strong US consumer demand was added to the recovery of our other traditional markets, being Canada and the UK.

The outlook is now more uncertain, so we will start by doing a deep dive into the US travel market courtesy of Adam Sacks, president of tourism economics, a subsidiary of economic consultancy Oxford Economics. Currently US-based tourists and overseas Jamaicans represent virtually all travel to Jamaica.

In a recent presentation on the US Travel Recovery, Sacks noted four major themes: Recovery continues under storm clouds, the economy will fuel a rebound; travellers are more than ready; the recovery will come in stages.

He notes that the Delta variant is driving higher cases in the US, and to a lesser extent hospitalisations, but deaths remain 90 per cent below January levels. Thirteen states, predominantly in the north-east, are on track to vaccinate 70 per cent of their population by the fourth quarter, but most states would not get there before mid-2022. Consumer readiness to travel sentiment appears to have plateaued at 80 per cent, with the number expecting COVID-19 to get better next month halving to 32 per cent, with a combined 24 per cent of consumers saying the new Delta variant has led them either to postpone travel to later in the year or next year. Nevertheless, the US travel recovery continues.

Internal air passenger traffic for May and June of 2021 is 33 per cent and 26 per cent less, respectively, than May and June of 2019, while overseas arrivals are down 81 per cent and 77 per cent for the same periods. Airplanes are filling up, with air passenger volume continuing to rise to 80 per cent of 2019 in June, compared with just five per cent in April 2020. US hotel occupancy equalled 2019 on Memorial Day and the 4th of July, and currently is just eight per cent below 2019. Upper upscale hotels are nearing 80 per cent of occupancy levels, while the economy class now appears fully recovered.

Sacks thinks a strong economic recovery will fuel a rebound, with the US now down only 6.8 million jobs, or a 5.9 per cent unemployment rate. Labour demand is now outpacing hires, with new job openings surging higher than hires, bringing the number of unemployed persons per job opening down to one from five in April 2020. Openings in accommodation and food service at 9.9 per cent are much higher than the US average of 6.4 per cent, calculated as job openings relative to total employment plus job openings, while average wages in leisure and hospitality are now above US$15 per hour. Oxford Economics projects the strongest US GDP growth since 1984, at seven per cent.

Sacks argues that US travellers are more than ready to travel, as they have only spent 25 per cent of their stimulus cheques, which has led to a huge spike in the personal savings rate to just under 15 per cent, or roughly US$2.5 trillion in cash. Their travel plans for the next six months have remained steady at nine out of ten.

However, Sacks notes the recovery will come in stages, with only 55 per cent of US companies conducting business travel in June, although a combined 86 per cent either plan to resume business travel in next three months, or are already travelling. Group demand remains depressed at 45 per cent, but based on current increases in booking rates, should see a sharp pick up in the fourth quarter.

So in short, although Oxford Economics is now projecting lower US GDP growth than before, at seven per cent rather than 7.7 per cent for 2021, and has also reduced its projection for 2022 by 0.2 per cent to 4.3 per cent, these are still very healthy rates of growth. They also still expect the first US Fed interest rate hike to occur in the first quarter of 2023, with a second one to follow, or a combined half per cent, which is still very low.