With the COVID 19 spiking around the country as citizens finalize their holiday plans, Congress finally came together on further financial relief. For many, it is just in time, with certain benefits and protections set to expire by month's end.
Many of our subadvisory & research partners have started to publish their thoughts on the coming year. Even with vaccine hopes on the horizon, investment markets still face many unknowns.
After a break next week, Integrated Insights will return in the New Year with weekly commentary.
Here's what we are reading this week:
The new nominal -- BlackRock see stronger growth and lower real yields ahead as the vaccine-led restart accelerates and central banks limit the rise of nominal yields – even as inflation expectations climb. Inflation will have different implications to the past.
- Globalization rewired -- Covid-19 has accelerated geopolitical transformations such as a bipolar U.S.-China world order and a remaking of global supply chains – placing greater weight on resilience and less on efficiency.
- Turbocharged transformations -- The pandemic has added fuel to pre-existing structural trends such as an increased focus on sustainability, rising inequality within and across nations, and the dominance of e-commerce at the expense of traditional retail.
- Macro -- The world is turning the corner toward recovery.
Economic growth is making a comeback. The International Monetary Fund (IMF) estimates that global GDP will climb 5.2% in 2021. But risks to recovery remain, chief among them a resurgence of COVID-19. Low rates continue to support asset prices. With interest rates seemingly “lower forever,” equity markets may move higher if investors flock to stocks in search of better returns than those offered by other asset classes.
- Equity -- The future is here, and it’s digital.
Digital leaders across industries are leaping ahead of the competition. Companies with fast and efficient online business models are soaring above the terrestrial competition, disrupting the status quo. Not all experiences can be digitized. Pent-up demand is poised to fuel a comeback in travel and other hard hit sectors as people yearn to go on their next vacation or simply go out to dinner. Think all innovation is in the U.S.? Think again. Europe and Asia lead the world in some of tomorrow’s technology, from renewable energy to digital payments.
- Fixed Income -- Core strength matters when life is uncertain.
Strong core bond allocations remain a smart strategy. 2020’s fastest equity decline in history showed how important it is to continue to hold high-quality bonds as a buffer to market volatility. After big inflows into corporate bonds, it’s time to be selective. Investors are rushing into corporate bonds in search of higher income, so beware of taking on too much risk. Municipal bonds continue to look attractive, offering favorable levels of tax-advantaged income and more diverse opportunities.
Like a student leaving home to go to college, the U.S. economy will have to make it on its own without much financial aid in 2021. And like parents saddled with a high debt burden and a mortgage to pay, the U.S. government may be limited in its stimulus support going forward.