After a volatile and historic 2020 we are optimistic headed into 2021
2020 was a year of surprises – an unexpected pandemic, a global economic shutdown, the sharpest US recession since the 1930s, and then the fastest ensuing economic recovery in history. Equity markets faced similar volatility with the S&P 500 experiencing the fastest bear market in history, and then the accompanying fastest bull market recovery in history. And yet by late-summer the market was once again in full stride and making new all-time highs, even as the wounds from the global pandemic remained.
Heading into year-end the world (and global economy) faces a difficult winter as the labor market recovery is slowing, COVID cases are spiking, and the sustainability of economic growth is uncertain amid new lock-downs. However, as we turn the corner and enter 2021 our outlook is positive. Much of the uncertainty that plagued markets this year appears resolved (US election, COVID vaccine), and we believe the worst to be behind us. We expect the economic recovery to resume in 2021, with widespread distribution of COVID vaccines the key catalyst.
Our 2021 market outlook theme is “restart”, and with a restart comes optimism and the chance to begin anew. The post-COVID era provides that chance for investors, with both opportunities to capitalize on and challenges to avoid. The combination of COVID vaccines and accommodative monetary policy should help restart latent services sector businesses, while also emphasizing the strength of cyclical ones. At the same time, business models will need to adapt, and so labor market slack may persist into the near-future. Accommodative fiscal policy should provide a safety net for individuals and businesses, and help to soften the drag on the economy as this happens.
For investors, portfolios and investment strategies will need to adapt to the current environment. There will be volatility and bumps along the way as this happens, but for those that are disciplined and able to look past them, we see more opportunities ahead for upside than downside.
Five key investment themes for 2021
Heading into 2021 we expect a pick-up in global economic activity to provide tailwinds for further market upside, but caution that it will likely be a volatile path given COVID-uncertainty. Our five key investment themes in our market outlook discuss how the ongoing recovery is likely to impact the broader economy and markets. Our outlook is highly contingent on the trajectory COVID cases, including a successful global vaccine distribution, as well as ongoing fiscal and monetary policy.
Here are our five key investment themes for 2021:
- The economic recovery will continue, helped by COVID vaccine roll-out
- Persistent fiscal and monetary policy support should keep markets stable
- Inflation isn’t a concern right now, but could start to pick-up in 2H21
- Equity markets will likely run higher as economic conditions improve
- Portfolio yield opportunities exist, but from non-traditional sources
ENDNOTES
Disclosures
This material is not intended to be a recommendation or investment advice, does not constitute a solicitation to buy, sell or hold a security or an investment strategy, and is not provided in a fiduciary capacity. The information provided does not take into account the specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on an investor’s objectives and circumstances and in consultation with his or her advisors.
The views and opinions expressed are for informational and educational purposes only as of the date of production/writing and may change without notice at any time based on numerous factors, such as market or other conditions, legal and regulatory developments, additional risks and uncertainties and may not come to pass. This material may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections, forecasts, estimates of market returns, and proposed or expected portfolio composition. Any changes to assumptions that may have been made in preparing this material could have a material impact on the information presented herein by way of example. Past performance is no guarantee of future results. Investing involves risk; principal loss is possible.
All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.
A word on risk
All investments carry a certain degree of risk, including possible loss of principal, and there is no assurance that an investment will provide positive performance over any period of time. Equity investments are subject to market risk or the risk that stocks will decline in response to such factors as adverse company news or industry developments or a general economic decline. Debt or fixed income securities are subject to market risk, credit risk, interest rate risk, call risk, tax risk, political and economic risk, and income risk. As interest rates rise, bond prices fall. Non-U.S. investments involve risks such as currency fluctuation, political and economic instability, lack of liquidity and differing legal and accounting standards. These risks are magnified in emerging markets. This report should not be regarded by the recipients as a substitute for the exercise of their own judgment. It is important to review your investment objectives, risk tolerance and liquidity needs before choosing an investment style or manager.