Although the risk of a second wave is considerable, the risk of a second lockdown is lower in our view given 1) the world is now better prepared, 2) experts’ understanding of virus spread has evolved, and 3) the economic impact of shutdowns proved harsh and non linear. Read More
The global economic recovery appears to have begun, making this likely the deepest yet shortest recession in post war history with global GDP falling 3.4% in 2020. The case for a sharp recovery has been strengthened by recent data surprises. In the US, improving labor data, expanding manufacturing, and rebounding consumer activity have supported expectations for a potential acceleration from the Q2 trough and 4.6% US GDP growth this year. Read More
The $2.6 trillion in US fiscal stimulus enacted has proven robust. Policies have stemmed labor market damage with temporary layoffs >70% of unemployment claims. Individual payments have more than offset private income losses whereby estimated 2020 disposable income growth ((+4%) is close to the 10 year average. But several programs expire in July and we expect Congress to enact another $1.5 trillion (7% of GDP) in spending. In Europe, the proposed €750 billion post pandemic recovery plan would be important, practically and symbolically, for the European Union’s future health. Read More
The primary risk remains virus related, but we are attuned to underlying tensions that may resurface. US China relations have deteriorated and the likelihood of US legislation against China (e.g. equity delistings, Hong Kong) has increased. US domestic politics may elevate volatility as the November election approaches. In Europe, Brexit negotiations have been extended through August, but the transition period end date looms December 31. Read More
US equity outperformance over the past decade has been driven by profitability and the expanding role of technology. In our view the next cycle will likely see a diminishing number of high growth companies as the world readjusts to more debt, less growth, low inflation, and margin pressures. We believe the search for growth opportunities will broaden out geographically as the disruptive impact of technology permeates virtually every sector, and together with the increasing focus on ESG, companies’ fundamentals will likely be more important than where they are domiciled. Read More
Spreads have normalized though we expect Federal Reserve purchases in the secondary market may allow yields to compress further. On the shorter end, yield curve control may limit the potential for bond prices to rally. We still prefer IG credit, but the incremental yield pick up for HY may be attractive as growth accelerates and default risk is better priced into the market. Read More
The extended OPEC production cuts reflect a balance between normalizing inventory and increasing market share. Temporary cuts may limit oil price rallies and move the curve into backwardation, which would likely benefit OPEC producers. Meanwhile, gold prices may stay elevated as both 1) a weaker US dollar, and 2) continued debasement concerns as real rates move lower, may drive demand higher and prices to $2000 troy/oz. Read More
The convergence of Fed policy rates to other major central banks’ has eroded the carry advantage of the US dollar versus other DM currencies. With valuations priced above fair value, US dollar weakness may persist if Treasury issuances increase or the Euro area recovery fares better than expected. Read More
COVID-19 is the type of generational event that transforms how households consume, businesses operate, and economies function. Coming out of the crisis, we anticipate entering a “new normal,” where the societal and consumer transitions that were underway pre-COVID are accelerated and businesses made more competitive. Preferences that may have previously been limited to the millennial generation – such as e-commerce and ESG – have now been widely adopted. So who are you post-COVID? We are all millennials now.
As a result of widespread lockdowns, consumers have shifted a significant portion of their spending online. In the US, e-commerce penetration has increased as much this year as it did in the ten years prior. Anecdotal evidence from other countries suggests that the online migration has been global. We anticipate that these new adopters will stick with this medium even after economies reopen, and that the e-commerce acceleration may continue to reshape the retail landscape.
The events of recent months have placed renewed focus on corporate ESG practices. In the public, 89% of Americans agreed that this is an opportunity for companies to reset and focus on doing right by their workers, customers, community, and environment, in addition to shareholders. For investors, the pandemic has accelerated demand across sectors for the companies poised for the post-COVID world – one that puts profits alongside people and the planet.
The global corporate landscape has changed dramatically in the last 20 years, and we expect that it will continue evolving for the next 20. The future market leaders, in our view, will have strategies that take advantage of the trends that have likely already begun. By looking at the world through a millennial lens, investors may identify tomorrow’s winners today.
Top Section Notes: As of June 15, 2020. Retail analysis does not include autos, gas, or food and beverage services. Middle Section Notes: As of June 8, 2020. Left chart shows responses to the statement “This is an opportuntity for large companies to hit ‘reset’ and focus on doing right by their workers, customers, community, and the environment.” Right chart shows the public’s perceived importance of company stakeholders. Shares do not sum to 100 due to rounding. Bottom Section Notes: As of June 30, 2020. Any reference to a specific company or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. Past performance does not guarantee future results, which may vary.
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