Perspectives : March 2021 : The economic recovery

SUMMARY OF THE MONTH

• The U.S. economy continues its recovery at an accelerated pace. The jobs sector has shown good signs of recovery in late March and early April.
• Inflation continues to be a key issue and the market seems to be moving around this theme. The main consideration is whether it will rise materially in the coming months.
• The vaccination process in the United States is progressing steadily, with 90% of the U.S. population expected to be vaccinated by July.
• Considering a U.S.-focused economic recovery, some of our stated theses may underperform in the short term, but we are confident that they will perform well in the medium and long term.

Macro corner : recovery

Both the S&P500 and the overall equity market had a great month in March, with an interesting level of volatility and a large difference in performance between sectors. However, it would appear that the market and the economy are in a new bull cycle.

There are three main themes that are on the minds of many investors:

1. Curve Control (YCC) by the Federal Reserve (Fed).
2. Excess liquidity in the financial systems and therefore possible inflation as a result.
3. The speed with which the rest of the world can catch up to the U.S. level of recovery.

Regarding the first point mentioned, we believe that the market has always assumed that the Fed will use Curve Control to keep the ability of companies to borrow money at relatively low levels.

However, so far the Fed has not made an explicit comment that it will do so. Ten-year interest rates have doubled since the beginning of the year. This is a key point, as without curve control, the discounted future value of the equity sector is overvalued at these levels. Currently, we believe that the Fed will continue to do all that is necessary to sustain the economy, which leads us to the second point.