Coronavirus vaccinations and the US$1.9-trillion fiscal stimulus package are paving the way for the U.S. economy to recover as the world enters the second year of the coronavirus pandemic, in turn driving investor demand for equities and risk assets, according to a recent webinar hosted by Natixis Investment Managers.
Esty Dwek, global market strategist at Natixis, said vaccinations and government stimulus are likley to enable the reopening of U.S. states later this year, with a resutling economic recovery likely to begin in the second quarter and gain strength in the third. “We’re seeing a rotation into equities, not out. With fiscal support and reopening on its way, I don’t see why you wouldn’t stay in risk assets and equity markets.”
She said while there’s a perception that an increase in U.S. bond yields will be detrimental to emerging markets, this trend has been counterbalanced by better pandemic responses and earlier domestic reopenings in many global economies, particularly those in the Asia-Pacific region.
And with many employers eyeing the return of white-collar employees to offices later in 2021, there’s also investment opportunities in real estate, Dwek said. “Although some sectors won’t go back five days a week, people want to interact with colleagues, so there’s plenty of opportunities. [Real estate] could be an interesting play alongside some diversification with equities.”
Also speaking during the webinar, Jack Janasiewicz, portfolio strategist and manager at Natixis, said while factors such as increased fiscal spending will eventually lead to inflation in the U.S., it’s not likely to happen in the near future. “Inflation’s a difficult thing to generate and it’s not about to change any time soon. A lot of this money coming into the system is finding its way into the stock market instead of goods and services. That’s one differential we’re seeing.”
Other reasons pointing to delayed inflation include the pricing in of vaccination and economic stimulus into U.S. bond rates, said Dwek.
She also said commodity prices will likely continue to grow following a recovery and rally last fall, buoyed by increased demand from the U.S. and China. “As long as vaccinations go up, Chinese growth is strong and the U.S. reopens, you’ll see continued support for commodities. It’s also a good way to hedge against the inflation question.”
And although U.S. President Joe Biden represents a return to a more-traditional administration following the unpredictability of former U.S. President Donald Trump, Dwek said there’s challenges ahead that will affect global markets.
“Biden wants to work with allies within the established framework. But we’ve seen that the relationship with China isn’t improving immediately — there’s been no talk about removing tariffs. There’s also a large [environmental social governance] push in both Europe and the U.S. and you can see friction because the different sets of objectives don’t match. [The economy] will improve faster under Biden than Trump, but we’re not going back to the move towards globalization.”