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March 2021

MARKET PULSE | March 2021

Macro Views


Case growth and hospitalizations have mostly slowed across major global economies. While new virus strains may challenge the recovery, data suggests that vaccines have universally reduced the severity of symptoms. Relative to unvaccinated populations, hospitalization risk for the vaccinated population fell by 84% four weeks after receiving the first vaccine dose. Read More


Widespread immunization, accommodative policy, and pent-up savings are expected to support the global economic recovery, although new COVID-19 strains remain a concern. While massive fiscal support and excess savings may risk overheating the economy, we believe the impact will be limited by the one-off nature of the fiscal boost. Stronger corporate earnings and expectations for a larger stimulus deal led us to revise up our US growth forecast to 7.0% in 2021. We expect the Euro area to grow 5.1%. Read More

US Policy

Congress is on track to pass its COVID-19 relief bill in March, which is expected to be the first of at least two significant spending bills from the Biden administration in 2021. Through the reconciliation process, President Biden and Congressional Democrats are expected to have greater control in determining the size and details of the bill. We expect the Phase 5 fiscal package to total ~$1.5 trillion (6.8% of GDP), with risks to the upside. Read More


US inflation is on track for a mid-year boost above 2% as the economy approaches one year from the worst declines of 2020, a jump that the Federal Reserve has signaled it will look past. We expect the boost from base effects and healthcare-related policy to lift core PCE to 2.5% in April, but to then fall back to 2.05% at year-end, declining further to 1.85% in 2022. Read More

Market Views


As the global economic recovery materializes, we expect returns to continue broadening out. Value-style stocks should benefit from activity in virus constrained sectors. Small caps’ cyclicality has historically outperformed in the first half of expansions. And globally, we are focused on companies rather than countries, especially those with near-term cyclical earnings potential that may outweigh longer duration growth prospects in a reflationary environment. Read More


The cyclical recovery will likely continue to carry credit, as short-term default risks reprice lower (we expect 3.9% in 2021) and spread curves steepen. As yields test all-time lows, we still see value in 1) HY ‘rising star’ candidates that could be upgraded to IG in the recovery, 2) the proliferation of refinancing issuance as issuers take advantage of strong demand, and 3) global spread sectors with attractive absolute and risk-adjusted yields such as Asian HY. Read More


The tactical opportunity is attractive as most commodities are well-positioned for reflationary momentum. The oil market has undergone a multi-year period of reduced investment and if OPEC production discipline continues as post-COVID demand recovers, the technical backdrop will support higher spot prices. Additionally, with forward curves in steep backwardation, synthetic exposure may provide positive roll yield. Read More

The Right Side

On page two, we examine the implications of an expensive equity market relative to the current macro backdrop of low rates and stable inflation. While equity valuations matter, we believe that being in the early innings of the economic recovery will matter more. Read More

The Right Side of Markets

High valuation, low yields, and extreme trade positioning may present near-term hurdles to positive equity momentum. However, we believe the current market is sufficiently supported by low interest rates, massive stimulus spending, and a recovering economy borne out of the vaccine. Ultimately, our expectation for double digit year-end returns is reinforced by the historical high probability of positive returns during increasingly lengthy expansions. 

Valuation matters, but economics matter more

The early innings of an economic recovery have often been accompanied by bullish market sentiment. High probabilities of positive returns are driven by recovering fundamentals and a favorable growth picture, which can prove more important than valuation in the near-term. Historical data tells us that economic expansions have been rewarding for investors, posting positive returns 87% of the time, with 63% of returns greater than 10%.

Source: Bloomberg and GSAM SAS Market Strategy.

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