Perspectives | December 2020 - Economic Recovery

Summary of the month

• We started the month of November with the market and the economy down. The reason was the expected instability due to the US presidential elections. Throughout the month, positive news from Pfizer and Moderna vaccines gave a boost to the S&P 500, resulting in a final positive close near 11% .

• In addition, we are starting to see a rotation of the sector Growth to Value. Positive news regarding the recovery of the economy and vaccines to fight COVID-19 lead investors to reassess the positive impact on industries outside the IT sector.

• The interest rate curve has remained flat, implying that the Federal Reserve will seek to keep long-term rates at low levels. This policy would benefit companies that require liquidity to exit this crisis. In general, we believe that the risk of a crisis or crash The strong financial position has been deferred for at least 6 to 12 months.

Markets and economy

The equity market continues to show strength. Small and large positive news, maintaining significant upward momentum. During the second half of October, we saw the market fall sharply, losing almost 10% of its value. With elections promising to be contentious, which would create further uncertainty among investors. 

However, a calmer-than-expected election process, coupled with news of effective COVID-19 vaccines, was enough to reverse the decline and push the S&P 500 to historic highs. 

The market continues to ignore the increases in COVID-19 cases worldwide and the new containment situation in Europe. Indirectly this could increase the risk of economic recession in certain countries. However, assuming infinite support from governments and central banks dilutes that perception.

U.S. economic indicators show surprising strength

The economic impact has not disappeared and we can see it in the existing differential of companies that have benefited immensely from the impact of the pandemic. For example, the IT industry, and those negatively impacted such as the financial, energy and services sectors. Additionally, the market remains overvalued relative to historical averages. 

However, despite the continued need for additional fiscal stimulus, we see key economic indicators improving significantly.