The market benefits from policy support
Economic conditions have improved, but activity remains far below normal levels in some sectors, and payrolls are 10 million below the pre-pandemic level. Some social distancing restrictions have been lifted, helping measures of mobility to stabilize. What’s new?
New COVID-19 cases peaked in early January and have since declined by around twothirds, while the pace of vaccinations has more 10 million than increased to per Some week. social distancing restrictions have been eased.
The ISM indexes are in territory normally associated with robust growth, and housing-related data has been the strongest since the bubble period in the mid-2000s. Retail sales jumped 5.3% month-overmonth in January after declining the previous three months. On the downside, the labor market recovery has stalled recently after strong gains in previous months. Money from December’s USD 900 billion fiscal package is flowing into the economy, and President Biden’s proposal to spend an additional USD 1.9 trillion passed this week.
Financial conditions are extremely easy. The yield curve remains upward sloping. Spreads on corporate debt have narrowed beyond pre-pandemic levels. Mobility indicators have stabilized and are much better than at the peak of lockdowns last April.
What are we watching?
We are carefully monitoring the spread of the virus and its impact on the economy, as well as the pace of vaccinations and the approval of more vaccines. Successfully reopening schools would be an important step in getting more people back to work. We will watch the takeup of Paycheck Protection Program funds (USD 126 billion as of 15 February) and its impact on the labor market. We continue to read the political tea leaves that will determine the contents and timing of the next package making it through Congress.
What are the investment implications?
We favor investments that should benefit from strong global growth in 2021. We have a positive view on emerging market stocks, and within US equities favor small- and mid-caps.