House View April 2021Published on 19 Apr 2021
Growth optimism has increased substantially in the first quarter of 2021, driven by US fiscal stimulus and large-scale vaccination against COVID-19. Approximately 800 million vaccine doses have been administered globally, at a rate of c. 18 million doses per day (Source: Bloomberg, 12 April 2021). While distribution remains uneven, the path to ‘herd immunity’, which in turn should mark a shift to more familiar daily life, has become shorter and clearer. For the US and UK in particular, there is a real prospect of a sharp, consumer-driven recovery in the coming months.
Investors have responded to the optimism by pushing up government bond yields and rotating equity portfolios towards the most economically sensitive stocks and sectors.
Market winners of 2020, such as online retail and entertainment, have started the year on the back foot. While many of these businesses retain an enviable competitive advantage, the prospect of a resurgent economic backdrop has boosted the case for ‘cyclical’ stocks. Businesses in the financial, industrial and traditional service sectors have seen their share prices recover sharply following improved earnings expectations.
One year after the biggest deflationary shock in decades, the threat of inflation has emerged. The risk that overheating economies and near zero interest rates fuel uncontrollable inflation is genuine, but it is not sufficient to justify defensive portfolio positioning.
Our investment strategy favours a strong economic recovery in 2021 driven by a surge in consumer demand. Capital allocation blends managers that benefit from this theme with those that emphasise structural growth opportunities at a global level.
The risks to our outlook are assessed constantly, dominated by the potential evolution of the virus itself and uncertainty around future mutations. The good news is that vaccination efficacy appears robust against current variants in circulation, but we remain vigilant to unfavourable developments.
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