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INVESTMENT STRATEGY QUARTERLY

Letter from the Chief Investment Officer

Investing Is Not a Trivial Pursuit®

Americans, bored in their COVID-induced ‘bubbles,’ turned to board games for fun last year, boosting
sales 300%. They rolled the dice, drew the cards, and buffed the skills of cooperation, problem solving,
emotional intelligence, and reflective logic — the same competencies critical to successful invest-
ment strategies. So, we couldn’t help looking back nostalgically to our favourite games — and probably
yours — as we look forward to crafting a sustainable investment game plan.

Like players in Cluedo®, ‘The Classic Mystery Game,’ we have to be In the 1960s, Milton Bradley introduced battery-powered Opera-
good detectives, hunting for clues to either affirm or alter our tion®, which tested kids’ ability to remove ‘butterflies in the
views. These unprecedented times are a whole new game, often stomach’ and other ailments without setting off a buzzer. As the
demanding a fresh financial toolkit to solve the mysteries of the economy heals, the ‘money doctors’ at the Federal Reserve (Fed)
market. In other words, it’s no Trivial Pursuit®. will be delicately removing some of the ultra-accommodative
monetary policy that nursed the economy back to full speed. The
Remember how good you felt, passing ‘Go’ in Monopoly® and col-
lecting $200? Now imagine the U.S. economy as consumers pass trick: remove pieces from the accommodative policy without
‘Go’ with a collective $2 trillion in excess spending capacity as a being zapped by surging inflation or short-circuiting the economy.
result of Congress’ generous, stimulus-driven ‘Community Chest.’ The Fed will need to keep a steady hand and be patient. If inflation
That chest continues to grow with the Child Tax Credit beginning proves transitory and peaks during the third quarter as we expect,
in July and prospects for additional government infrastructure the Fed will be able to taper its bond purchases by late this year/
packages. While taxes are likely to move higher for corporations early next year and not raise rates until 2023.
and the wealthy, the ‘Income Tax’ card will be less onerous than Fixed income investors will need to remain flexible — like the
originally outlined. With the U.S. debt ceiling likely raised by the players in the famous party game Twister®. Global investors will be
end of July or soon thereafter, there is little ‘Chance’ of govern- stretching for yields in an environment of near record-low (if not
ment default or bankruptcy. negative) yields. Positive yields in the U.S. seem like a winner, con-
tinuing to attract foreign investors and keeping yields lower than
Of course, the real game-changer for the economy wasn’t the ‘Get
Out of Jail Free’ card; it was the ‘Get Out of the House for Free’ valuations may suggest. However, the healthy U.S. economic envi-
vaccine process that has inoculated more than 60% (and growing) ronment and the uptick in inflation should push yields higher.
of U.S. adults. Now that consumers can join friends for dinner, go These entangling forces are keeping yields knotted in a tight range,
to sporting events and concerts, and travel on planes, the U.S. has but we ultimately expect the 10-year Treasury to move modestly
regained all of its economic activity lost during the recession. The higher and finish the year at about 2.0%. If yields move decisively
hot real estate market proves that people are ‘buying properties’ above 2%, don’t be surprised if the Fed adds its own ‘Twist’— pur-
in classic Monopoly® fashion and higher home prices are a key chasing bonds on the long end of the curve to keep interest rates
driver of the positive wealth effect for consumers. Once more, eco- lower. While the strength and breadth of the economy remain
nomic growth should go racing around the board on the back of solid, valuations continue to favour the highest quality bonds from
robust consumer spending, rebuilding inventory levels, recovering a risk/return perspective.
foreign economies, and rising U.S. employment (expect an average In equities, it’s easy to Connect Four® reasons why this young bull
of 500,000 new jobs a month over the next six months). As a result, market will continue for the foreseeable future: 1) a still-improving
2021 GDP growth will likely meet, if not exceed, our expectation of macroeconomic backdrop; 2) attractive valuations, especially
6.2% and remain strong into 2022. versus bonds; 3) increased shareholder activities in the form of
growing dividends and buybacks; and 4) strong earnings growth

Investment Strategy Quarterly is intended to communicate current economic and capital market information along with the informed perspectives of our investment professionals.
You may contact your wealth manager to discuss the content of this publication in the context of your own unique circumstances. Published 06/07/2021. Material prepared by
Raymond James as a resource for its wealth managers.

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