San Franciso, California,
January 1 2021
2021 Outlook Highlights
As we start the year and share our 2021 Outlook with you, we feel it’s important to acknowledge the disconnect between rising financial markets and the difficulties faced by many individuals, families, and communities around the world.
For most of us, it is a period like no other in our lifetimes. Nevertheless, we try to remain as analytical and cool-headed as possible when evaluating prospects for portfolios.
In financial markets, 2020 will be remembered for breaking records across a wide swath of statistics. Unemployment reached near record highs, GDP collapsed and then staged an equally stunning recovery, and global fiscal and monetary stimulus dwarfed that of the Global Financial Crisis.
Now, as we start 2021, we are watching three things in particular:
· Vaccines: Despite a slow start, we expect the most vulnerable and front-line workers to be immunized in the near future. Furthermore, early indications show reasonable defensiveness against the recently emerged new variants of the virus.
· Fiscal Stimulus: We think a more unified government may be able to fast track additional fiscal stimulus in the form of direct support to households and perhaps infrastructure investments.
· Monetary Stimulus: As we have written about before, the Federal Reserve has announced a substantial shift in policy with far reaching implications. Perhaps most important for long-term investors, the Federal Reserve’s new policy means that they are no longer “fighters of inflation” but rather “supporters of inflation and the labor market”. This is a tide shift in policy and, in our view, a long-overdue acknowledgement that the United States faces deflationary (or weakly inflationary) pressures: aging demographics; high levels of household, corporate, and government debt; and little productivity growth.
We expect the economy to continue to recover over the coming years on the back of these three pillars – vaccines, fiscal stimulus, and monetary stimulus. Corporate revenue and profits should recover and, in turn, support stock prices. Typically, this type of recovery would lead to expectations of higher interest rates and, eventually, pressure on stock prices. As one Fed Chairman once put it, the Fed’s job historically was to “take away the punch bowl just as the party gets going”. Not anymore. The Fed’s new reflationary framework may change that dynamic and continue to support equities, even as inflation picks up. We will be watching closely for initial inflationary signals and the Fed’s commentary in the months to come.
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Certain economic and market information contained herein has been obtained from published sources prepared by other parties, which in certain cases has not been updated through the date of the distribution of this presentation. While such sources are believed to be reliable for the purposes used herein, Jordan Park does not assume any responsibility for the accuracy or completeness of such information. Further, no third party has assumed responsibility for independently verifying the information contained herein and accordingly no such persons make any representations with respect to the accuracy, completeness or reasonableness of the information provided herein. Unless otherwise indicated, market analysis and conclusions are based upon opinions or assumptions that Jordan Park considers to be reasonable.
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