Page 14 - ISQ January 2021

INVESTMENT STRATEGY QUARTERLY

2021 US Equity Outlook: Turning the Page

J. Michael Gibbs, Managing Director, Equity Portfolio & Technical Strategy
Joey Madere, CFA, Senior Portfolio Analyst, Equity Portfolio & Technical Strategy

As the calendar turns to 2021, we maintain a positive view
on the equity markets. This stance stems from our expecta- “Economic data and corporate earnings have
tion for an economic recovery, fueled by the likelihood of at recovered well above feared expectations from six
least three vaccines with stated 90% plus efficacy rates. to nine months ago, momentum that we believe
This increases the chances that enough of the population will continue...”
(essential workers and those most at risk) gets vaccinated
to allow for an economic reopening as 2021 progresses in
our quest for a return to normality. Economic data and may make the battles tougher, but we do believe the majority of
President-elect Biden’s agenda ultimately gets accomplished. The
corporate earnings have recovered well above feared
result is a net positive for potential economic growth this year,
expectations from six to nine months ago, momentum
and consequently enhances the reflation trade already underway
that we believe will continue over the intermediate term.
on vaccine optimism. However, while the short-term outlook (six
We also believe the Federal Reserve (Fed) will remain
to twelve months) is bolstered due to the likelihood of increased
accommodative and on hand to support the economic stimulus, the longer-term outlook (beyond six to twelve months)
recovery as needed. is murkier given the potential for higher taxes, higher interest

The Democratic sweep raises the odds of higher fiscal stimulus and rates, and lower valuations. The prospect of higher taxes will
spending, however it is also likely that Democrats will want to pay be a headwind to earnings growth in 2022 and 2023 in our view.
for this stimulus with higher taxes down the road. The slim majority This will also likely be a headwind to valuation multiples later
may temper the ability for the full agenda to be completed and this year, as investors position over time for the coming changes.

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