Investing after COVID

With economies opening up, what does the horizon look like for investors?

June 25, 2021

For investors, policymakers, central bankers and anyone, anywhere tied to markets, investments, currencies, equities or bonds, the last 18 months has been a cacophony of calls in wildly different directions as to what, when and how the economy would recover post-COVID. Now is the first time we have a view of what that recovery is starting to look like, and we can review the last 18 months on how the entire system has changed.

Out with Monetary; In with Fiscal

If calamities of the scale of the pandemic can do one thing, other than their natural harm, it’s getting governments, central bankers and corporate policymakers all to stand on their heads. Not too long ago, the Great Financial Crisis (GFC) showed that governments around the world were stubbornly sticking to their monetary policies of keeping interest rates low to encourage consumer spending and limiting direct fiscal stimulus to only what was absolutely necessary.

However, with the COVID pandemic, every government across the globe has turned out this rigid application of monetary policy favouring direct fiscal stimulus to those in need. Even the stingiest of historical governments, such as Germany, overturned decades-long traditions of legislation prohibiting negative budgets. As a result, the world governments went on a spending spree, unlike anything anyone has almost ever seen. In just two months, governments allocated over $10 TRILLION in funds to stimulus, and as of June 2021, world governments have spent three times what was spent on the GFC. So what does all this printing and spending of money by governments mean for consumers, markets and investors?

Did Massive Stimulus Work?

One of the most telling and shocking to those fiscally conservative was the fact that both in Canada and the US, there were periods in 2020, when the gross domestic product (GDP) of each country was shrinking at the fastest rates on record, household income, due to government stimulus, was actually increasing.

While there is still much to be said on the pain and loss of life and the increased effects of the pandemic on the jobless rate for many demographics, governments more humanitarian efforts to cushion consumers from shutdowns with stimulus seems to have had the desired result.

The Horizon Shines

The most recent report on economic forecasts by the Congressional Research Service in the US produced in “Global Economic Effects of COVID-19,” updated on 17 June 2021, project for OECD countries (Organization for Economic Cooperation and Development) including the US and Canada, a forecast growth of 5.8% in 2021 and 4.4% for 2022.

This report further outlines that the forecasts during the pandemic were, in fact, overstated. A May 2021 global GDP forecast listed the decline during COVID as -3.5% in GDP compared to a June 2020 forecast of -6.9% decline.

So while GDP forecasting looks robust for the next two years, equity investments have been a driving force behind the scenes, even driving public equity markets. There are almost 700 unicorns – startups with valuations of $1 billion or more – with a majority of these companies operating in the US. Even more telling is that the private equity market equalled $724 billion in deals, showing there is a robust appetite for the financing of private and public companies.

All of this financing trickles over to feed public markets by way of competition, driving employment and wage pressures. Can all this ward off the inflationary pressures discussed last month here? Only time will tell, but it is definitely an exciting time to be an investor with a long horizon to enjoy the value of investing in out-paced growth and value positions in the recovering economy.

Be sure to tune in monthly in 2021 for my continued thoughts on the markets, how they may change and what to expect.

Looking to make a change, want a second opinion, or looking for additional advice? Feel free to reach out to me any time by phone or email.

Author Steve McBride, Investment Advisor, Echelon Wealth Partners, looks forward to connecting with you about your future wealth management needs.

 

Disclaimers

This blog is solely the work of Steve McBride for the private information of his clients. Although this author is a registered Investment Advisor with Echelon Wealth Partners Inc. (“Echelon”) this is not an official publication of Echelon, and this author is not an Echelon research analyst. The views (including any recommendations) expressed in this newsletter are those of this author alone, and they have not been approved by, and are not necessarily those of, Echelon.

Echelon Wealth Partners Inc. is a member of the Investment Industry Regulatory Organization of Canada and the Canadian Investor Protection Fund.

Forward-looking statements are based on current expectations, estimates, forecasts and projections based on beliefs and assumptions made by authors. These statements involve risks and uncertainties and are not guarantees of future performance or results and no assurance can be given that these estimates and expectations will prove to have been correct, and actual outcomes and results may differ materially from what is expressed, implied or projected in such forward-looking statements.

The opinions expressed in this report are the opinions of this author and readers should not assume they reflect the opinions or recommendations of Echelon Wealth Partners Inc. or its affiliates. Assumptions, opinions and estimates constitute this author’s judgment as of the date of this material and are subject to change without notice. We do not warrant the completeness or accuracy of this material, and it should not be relied upon as such. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Past performance is not indicative of future results.

These estimates and expectations will prove to have been correct, and actual outcomes and results may differ materially from what is expressed, implied or projected in such forward-looking statements. Echelon Wealth Partners Inc., its divisions, subsidiaries, and affiliates, do not provide any income tax advice and does not supervise or review any income tax returns. Please consult your accountant.

 

Source(s): 

https://www.mckinsey.com/featured-insights/coronavirus-leading-through-the-crisis/charting-the-path-to-the-next-normal/total-stimulus-for-the-covid-19-crisis-already-triple-that-for-the-entire-2008-09-recession

https://www.bnnbloomberg.ca/the-covid-trauma-has-changed-economics-maybe-forever-1.1610985

https://fas.org/sgp/crs/row/R46270.pdf

https://www.forbes.com/sites/theyec/2021/06/17/investment-trends-to-watch-for-in-the-post-covid-19-economic-boom/?sh=670b22c0579e

Echelon Wealth Partners, “Weekly Insights: Normal is gaining momentum,” Client Newsletter, 21 June 2021.

Echelon Wealth Partners, “Weekly Insights: Whistling by the graveyard,” Client Newsletter, 14 June 2021.

Echelon Wealth Partners, “Investor Strategy: Commodity Supercycle – Unlikely,” Client Newsletter, 7 June 2021.

Charts are sourced to Bloomberg L.P. unless otherwise noted.