INSIGHTS & VIEWS
INVESTMENT INSIGHTS
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Every other week, we ask for your thoughts on a top question our portfolio managers and strategists are debating. We share the final poll results and insights.
Fast forward to the first week of September, right after the U.S. Labor Day holiday. Most people are now fully vaccinated and the economic restart is well underway. What happened in the stock market in the six months leading up to this?
Source: Blackrock Investment Institute, with data from SurveyMonkey. Note: Poll data rounded to the nearest ten. Data does not include results from BlackRock social media polls.
Responses to our public poll show "cyclicals (banks, energy)" (37%) and "everything went up" (29%) were seen as the most likely stock market trends in the six months leading up to the economic restart and a fully vaccinated U.S. population. Next in the votes: “secular growth (tech, comms media) led” (27%), and “everything fell” (8%).
Just over half (52%) of BlackRock portfolio managers that responded to a similar poll expect cyclical sectors such as energy, banks and transportation to lead markets over the summer as the U.S. economic restart gathers pace. About a quarter believe we will see a broad equity rally as rates stabilize and the Federal Reserve maintains its bond buying.
Cyclical sectors have outperformed defensives (e.g., utilities) since last summer, helped in large part by positive news about vaccines. Some BlackRock portfolio managers believe the outlook for UK assets has brightened notably this year, echoing the BlackRock Investment Institute's (BII) tactical overweight on the market. BII recently broadened the cyclical tilt in its asset views, also closing an underweight in European equities. A commodity boom, particularly the surge in oil prices, is good for emerging market (EM) export revenue, remarked our EM fixed income team.
Some investors thought rates will likely stabilize after the economic restart, providing a good backdrop for a broad equity rally. An investor from the BlackRock Multi-Asset Strategies and Solutions team chimed in on the debate over when the Fed will begin raising rates. He noted the central bank's new average-inflation targeting policy framework and emphasis on “inclusive” employment goals. These new details, he commented, are often overlooked.
The fallout of the pandemic has hit female employment harder than male employment, widening the gender gap in the U.S. and Europe. Why? Sectors such as retail and travel that employ a much greater proportion of women were the hardest hit, noted a European bond investor.
BII sees the path out of the Covid-19 shock as a “restart” – not a typical “recovery” – and one that will likely be stronger than markets expect. The key reasons are the distinct nature of the shock, broad-based savings and different inflation dynamics.
BII now expects U.S. real GDP to return to the pre-Covid level by mid-2021, far sooner than our expectation right after the initial shock. We see the new $1.9 trillion U.S. fiscal package bringing forward the return to pre-Covid trend growth by two to three years – further accelerating the restart. The restart bolsters our pro-risk stance over the next six to 12 months, and makes us lean further into cyclical assets. This is reflected in an overweight to U.S. equities, and our preference for small caps, which extends to private equity and private credit.
For more details on how BII views the economic restart, read our global weekly commentary on the topic.
Tune in next Thursday for our new question of the week!