Markets After the Vaccine
Macro analysts Esty Dwek and Jack Janasiewicz look at how investors can be thinking about the global economy as Covid-19 inoculations get under way.
- While a spike in yields or an inflation scare are widely discussed potential risks for 2021, consensus market views – including sector rotations as the pandemic economic recovery moves ahead – have been mentioned less often. A dose of skepticism may be warranted.
- Regional differences are expected to remain prominent in the year ahead, with Asia in the lead after having better managed the Covid-19 pandemic. The US economy has held up, in large part due to monetary policy measures and fiscal aid. Additional fiscal aid is anticipated. Europe is expected to lag, in part as a result of widespread Q1 lockdowns and a more limited fiscal response on the part of the European Union.
- Thus far, the bulk of the economic recovery has been manufacturing-driven, with services continuing to struggle as a result of social distancing measures. Plenty of room remains for the services sector of the economy to play catch-up as inoculation efforts take shape.
- Despite initial fears, the Covid-19 pandemic has played out differently than the 2008 Global Financial Crisis. While economies worldwide contracted, interventions by governments and central banks helped to prevent wider financial emergencies. As such, the banking sector remains relatively healthy, particularly in the US, which bodes well for a continued recovery.
- An increase in corporate taxes and taxes on the highest US earners is expected under the Biden administration, though they may not be equivalent to the tax cut proposals seen during the 2020 campaign. The Democratic majority in the US Congress is razor-thin and includes moderate Democrats – significant tax cut and infrastructure legislation will require compromise.
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