Remember the “K-shaped recovery”?

The term rose to popularity during President Biden’s election campaign.

In a K-shaped recovery, some parts of the economy see their profits rise to new highs, while others see a sharp decrease. Sometimes it even leads to bankruptcy – as many brick-and-mortar stores collapsed across the country…

However, mega-cap companies like Amazon and Apple did very well last year. The cloud computing, semiconductors, and innovation ETFs were among the best performers during the pandemic.

That’s what a K-shaped market looks like. 

A lot of analysts are still expecting a K-shaped recovery.

But I don’t believe it…

Everything I’ve seen looks like we’re going to accelerate straight up and out of this funk. That’s the definition of a classic V-shaped recovery.

First, consider that most workers in the financial sector live in states hit the hardest by the pandemic, like New York and California. They look outside and see many people unemployed and businesses closed… While white-collar workers are thriving. Ultimately, this leads to gloomy predictions about what it would take to spur economic activity.

I’ve noticed this gloom in my community in Los Angeles. People are still shy about going outside. Anyone who does still has to line up outside stores, including the grocery, due to tight occupancy rules. While the COVID panic has subsided a little, it’s still there.

As a comparison, I was in Dallas for two weeks in February. Life could not be more different from Los Angeles… The environment seemed so much less worrisome. People were outside, shopping, going to restaurants, and enjoying themselves.

It felt normal again.

I really enjoyed my time in Dallas. So much so, in fact, that I’ve been trying to buy a house there.

But, the property market in Dallas is on fire. I’ve already missed out on two potential homes because of higher competing offers. Three of the houses my family was interested in were taken off the market. The sellers are waiting for higher prices.

I say all of this to show that the demand of houses for middle-class Americans seems higher than ever. That’s a clear sign of recovering consumer demand.

Another good sign is the desire for social connections. Everything I saw in Texas tells me people are leaping back into their normal lives as vaccinations roll out. The coasts are only now beginning to catch up to that surge in consumer activity.

That’s great for the beaten-down segment of the stock market. Brick-and-mortar retailers have been trending lower for years. Many failed to adapt to the online marketplace and suffered as a result. So many went out of business… They called it the retail apocalypse.

What most people don’t realize is that the recession was actually a blessing in disguise. It allowed surviving chains to close unproductive stores. They even got the opportunity to refinance their debt at very low rates in 2020.

Many are shifting their business models towards e-commerce. For example, Ryan Cohen, the co-founder of Chewy (an online pet food retailer), recently joined GameStop’s board. Chewy revolutionized the pet food industry, taking profits away from traditional brick-and-mortar stores like Pet Supermarket. Now, Cohen hopes to bring his e-commerce expertise to GameStop.

But, while more businesses move their products online, they still can’t replicate one of shopping’s best features… The exploration. People will always enjoy walking around stores just to see what’s new. It’s hard to bring that experience online.

So, as vaccines roll out and consumers begin to venture out again, surviving retailers will see a greater market share.

That’s great news for an economic recovery.

All of this will only be amplified by the incoming stimulus checks.

In fact, my teenage daughters have already started talking about how much they miss shopping at Build-A-Bear Workshop (BBW). That started as soon as they heard about the new stimulus checks. It’s exactly the kind of retail experience they long for as they venture back to the mall.

BBW’s stock rose almost 135% in just this past year… Suggesting they’re not alone. Everyone is longing to go back to the things they missed during the lockdowns. Pent-up demand for the familiar mall experience means this will be a recovery fueled by nostalgia.

All the best,

Eoin Treacy
Co-Editor, Market Minute