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Market and Economy Expectations for 2021

The investment professionals here at Watermark Stone Wealth recently attended the 15th annual iA Private Wealth Year Ahead Investment Conference held on January 18, 2021. The virtual event brought top investment minds together to provide market and economy expectations for 2021.

Differing viewpoints of more than 15 industry experts were shared, including:

  • Clément Gignac, First VP, Diversified Funds & Chief Economist at iA Investment Management Inc.
  • Philip Petursson, CIS & Head of Capital Markets Research at Manulife Investment Management

Here are some highlights and key takeaways from two experts at the event.

Clément Gignac on where the year began

A look back at 2020

  • The coronavirus pandemic and subsequent lockdowns created the biggest recession in recent memory; however, the downturn only lasted two months. Government intervention helped create a significant “V” shaped recovery.
  • The Canadian government deficit has skyrocketed to 16% of GDP. Without government intervention, we could have seen a Great Depression-like situation.
  • The Bank of Canada and the Federal Reserve dropped rates at the start of the pandemic and have committed to keeping rates low until there is an acceleration in inflation.
  • The pandemic is ongoing and has affected workers differently, depending on industry/profession.
  • Household income has been steady, but government aid has provided a boost. Both in Canada and the U.S., subsidies, grants and loans created a spike in spending. Individuals also have extra savings, which could help drive spending in the future.

Clément Gignac’s 2021 Outlook

  • Downside risks to be aware of for the economy include:
    • a second wave of COVID-19,
    • an end to government assistance,
    • increased social tensions in the U.S.
  • On the upside, efficient vaccines, more stimulus and a productivity boom could help boost the economy.
  • In order to keep the bull market going, there needs to be fiscal and monetary stimulus, a rebound in earnings, and effective vaccines. Without the support of even one of these we could see market volatility.
  • Lower returns for U.S. equities are anticipated going forward.
  • Canadian equities look like they will perform better than U.S. equities. Emerging market equities also have a positive outlook.

Philip Petursson’s 2021 Outlook

The Economy

  • Petursson’s view is that things will improve in 2021. Areas where he sees upside are:
    • economic growth,
    • corporate earnings,
    • wage growth,
    • commodity prices,
    • the Canadian dollar,
    • equity returns
  • The current environment is set up for economic growth along with increasing inflation. Canadian equities, emerging market equities, and commodities could fare well in this environment, while bonds and the U.S. dollar could experience weakness.

Manufacturing

  • Globally, there are signs of improvement from a manufacturing and trade standpoint, particularly in China and South Korea. The manufacturing and trade recovery is the strongest it has been in the past two years.

Personal Savings

  • An increase in personal savings and pent-up consumer demand could be positive drivers for the economy. Unlike the financial crisis of 2008-09, income has been growing coming out of the recession. Pre-COVID, the savings rate was 6.5% on average. Today, the savings rate is closer to 13%. This indicates that there are trillions of dollars in excess savings waiting to be put to use once the economy reopens.

The Markets

  • A lot of money that left the markets back in March has not fully come back yet. There are trillions of dollars waiting to be put to use once the economy reopens.
  • Currently, U.S. equity valuations relative to inflation are in the red zone, although earnings growth should help to ease the valuation pressure.
  • Canadian equities are attractive from a valuation and earnings perspective. Petursson expects to see a further recovery in oil prices, which should have positive effects on financials and materials stocks. He believes the TSX has the potential to perform better than the S&P 500 in 2021.

If you would like to hear more market and economy expectations for 2021, please reach out to Doug, Chuck, David, or Bob and they’ll share more about what they learned at the 15th annual iA Private Wealth Year Ahead Investment Conference.


Source: Year Ahead Investment Conference 2021 Event Summary Notes (2021, February 1)

Watermark Stone WealthMarket and Economy Expectations for 2021

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