Barring an unforeseen setback, the distribution of these vaccines should enable the global economy to recover more quickly and robustly than during a traditional recession, with the global economy in sound shape prior to the pandemic. Citi Private Bank’s Chief Economist Steven Wieting believes that the global economy should rebound from an annual contraction of negative 4% in 2020 to a positive growth rate of 4.2% in 2021. This economic recovery will likely be accompanied by a notable rise in global trade volumes, with the International Monetary Fund forecasting that world trade volumes in goods and services could rise by 8.3% year-over-year in 2021.
Some of this optimism has likely already been priced into the markets. After all, financial markets often serve as leading indicators, with asset prices often reflecting investor expectations for the future, rather than current conditions. Yet we continue to expect that there is further room to run in certain sectors and regions.
The “stay-at-home” stocks that saw significant price appreciation in 2020, including cloud-computing, technology, exercise equipment and home repair, will likely continue to be in demand, for example. But investors should also consider looking for opportunity in stocks with more room to recover from the damaging impacts of Covid-19, like industrials and financials.
The year ahead looks very promising, but it is not without risk. The development of Covid-19 vaccines is very encouraging, but the logistics and distribution challenges ahead are daunting. Virus mutations are also a cause for concern, but we believe humanity will once again come together during a time of great stress to overcome these challenges.
Financial markets are unlikely to make it through the year completely unscathed — a market pullback or correction almost assured — but I am bullish on the year ahead and believe that investors will once again be rewarded for taking on these risks.