COVID-19 impact on global supply chains

Localization. Digitization. Industrial protectionism. In the wake of COVID-19, the world is eager to form more resilient supply chains. These efforts could affect a range of industries as well as fiscal and monetary policy. In this 17-minute audiocast, Geopolitical Strategist Thomas Mucha speaks with members of our Global Macro Team about the future of global supply chains.

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The US Commodity Futures Trading Commission (CFTC) just released a report entitled “Managing Climate Risk in the U.S. Financial System.” The CFTC’s Climate-Related Market Risk Subcommittee, of which I am a member, began working on this project late last year. Our goal was to drive recommendations for mitigating and adapting to the physical and transition risks that climate change poses to financial markets.

The subcommittee’s 35 experts represent a range of industries, including financial markets, agricultural and energy markets, data and intelligence service providers, the environmental and sustainability public-interest sector, and academic disciplines. This disparate group voted unanimously to approve the release of the report.

Among the key findings for financial markets are that climate change poses a “major risk to the stability of the US financial system” and the American economy, and that the US should…

The Federal Open Market Committee’s (FOMC)’s September statement and press conference did not deliver any big surprises. The upshot is that the US Federal Reserve (Fed) appears to be committed to maintaining its “dovish” monetary policy stance for the foreseeable future.

Look no further than the Summary of Economic Projections (SEP), released in conjunction with the FOMC meeting minutes, in which the majority of participants indicated that Fed policy rates should remain around zero through 2023. This was largely expected, given the recent shift in the Fed’s inflation framework: Whereas the Fed has historically targeted an average inflation rate of 2% over time, under the new framework, the Fed could allow inflation to…

It’s been awhile since the CPI gave us something to think about, but today I believe there is an increased (and growing) probability of an inflationary outcome driven by several factors:

• The public health crisis is an exogenous shock (vs. the endogenous adjustment of a typical recession), suggesting a quicker recovery (influenced by the path/duration of the virus).
• The policy response to the crisis was swift and massive. This is the first time in decades there has been coordinated monetary and fiscal easing, and it is at a scale never seen outside of wartime.
• If Biden wins the US election, his administration will likely focus immediately on additional stimulus for the unemployed. Combined with the Fed’s “whatever it takes” approach to fighting deflation, this provides additional upside support to inflation.

Compounding the challenges faced by some institutions

The inflation/deflation outcome will have important portfolio implications for many institutional investors, including…

Earlier this summer, I virtually participated in an institutional conference with about 100 other asset managers and prominent asset owners from the US, Canada, Europe, Australia, and New Zealand. It was well worth my time. Here are my main takeaways, along with some personal observations on the post-COVID-19 industry landscape.

1. Economic assumptions and forecasts were more dire than I’ve seen internally. While Chinese gross domestic product (GDP) is expected to reach pre-COVID levels this year, the US may not get there until mid-2021 and likely only on the strength of “50% of the economy in steep recovery,” according to one conference participant. The other half of the US economy may..

The COVID-19 pandemic has represented a near-perfect storm for the world’s leading technology companies. Both earnings growth and valuation multiples have risen to extraordinary levels. Naturally, this raises questions about the sustainability of the current dynamics and the prospective risks and opportunities for investors.

The enduring case for tech

The technology sector’s strongest companies were already executing at a high level coming into 2020 — growing fast, expanding margins, and reinvesting in their value propositions. The COVID-19 pandemic has accentuated these characteristics by accelerating the need for consumers and enterprises to digitize. In addition to the COVID-19 tailwind, I think these firms deserve significant credit for their agility and decisiveness — as both attributes have allowed them to pivot quickly to capture these growth opportunities. Furthermore, I believe these companies’ unprecedented…

The US election runup has begun in earnest. With the Democrat and Republican conventions behind us, the presidential debates coming up, and less than two months to go until voters cast their ballots, investors around the world are increasingly asking how this momentous event may affect the economy and markets. Here are some of our latest thoughts, including how investors might position for November and beyond.

Sizing up the presidential race

Based on the latest polling (which isn’t foolproof), Trump is trailing Biden in the national polls by around eight percentage points and by an average of five points in key swing states like Florida, Pennsylvania, Michigan, and Wisconsin. With his…

In my last blog post, dated 8 July 2020, I opined that the US equity bull market was “back, broad, and bold.” With the S&P 500 Index now up more than 50% from its March 23 low, I think that description more or less remains accurate as the summer winds down.

The market’s seemingly relentless march higher naturally begs the question of whether or not an equity bubble has formed. A lot of ink has been spilled in that direction lately, with many commentators (including some of my own colleagues) suggesting that we may indeed be in an equity bubble akin to that of 1999.

A large cohort of market participants appears to agree: The percentage of bearish respondents to the weekly AAII Investor Survey has stayed atop the 40% threshold long enough that its 40-week average is now at levels not seen since 2009. (Prior to that, it was in 2002 and 1990.) Interestingly, that 40-week average actually…