By: Denis Rezendes, CFA
Amid expiring unemployment benefits, higher than expected retail activity, and lower than expected inflation, the main topic of conversation during our latest Investment Committee meeting was the economy. What are our systems seeing in the markets and how are they shifting portfolio exposure to navigate through an evolving situation? Watch September’s “Minutes in a Minute” with PM Denis Rezendes, CFA to learn more:
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Transcript:
Welcome to “Minutes in a Minute”. The theme investment committee today was the economy. We’re generally pretty positive on the long-term prospects for the economy. The way that we like to think about is that in 2019, prior to the pandemic, you had a pretty strong economy.
We were able to seemingly successfully put it on ice for about a year, year and a half, and during that time both the federal government and the Federal Reserve injected a lot of stimulus into the economy. So now as we’re reopening, we’re taking what we’re pretty strong consumers before the economy—they were able to even strengthen their balance sheets during the brief recession—and now we’re reopening with ample cash in the system, and that’s driving what is so far been a pretty robust recovery.
Unfortunately, there are more question marks in the short term. Whether it’s job growth or inflation, recently coming in a little bit lower than expected, or on the other side, retail sales coming in a little bit higher than expected, the picture in the short term is a little bit murkier.
Add to this that the expanded unemployment benefits have just ended, so we’ve got a large source of stimulus being drawn out of the economy. This leads to a very interesting picture going forward, but the stock markets haven’t really reacted to it at all. So the markets have been, in a sense, boring while we’ve got a very interesting economic story going on.
This is causing our models that focus a little bit more on the short-term outlook to decrease equity exposures a little bit. It seems like equities are priced to perfection at a time when we maybe have more questions than we’ve had over the past couple of months.
So where we are more short-term oriented and more dynamic, we’re coming to increase fixed income exposures, but our models that take a longer-term outlook are still generally overweight equities.
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