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Our investment professionals share and challenge each other’s views, creating a diverse marketplace of ideas for the Wellington Blog.

Fiscal policy

Most of the past decade-plus has been characterized by declining interest rates and tightening credit spreads. Against this backdrop, many traditional fixed income benchmarks have performed well, particularly those with longer durations and meaningful credit components.

However, we believe 2021 could mark a transition to a new fixed income reality wrought by ongoing structural changes, potentially leading to more frequent dislocations across market sectors. Here we describe the secular forces that we believe are driving these changes, to be followed by a proposed solution for fixed income investors in our next blog post.

Structural shifts in consumer behavior

The COVID-19 crisis has driven increased adoption of technology and structural shifts in consumer behavior, some of which are…

MARKETS
Emily Bannister
Emily Bannister
CFA
Investment Director
Boston
Richard Gilmartin
Rich Gilmartin
Investment Director
Boston

Hopes and expectations for generous fiscal stimulus to be delivered by the Biden administration are largely baked into the current market narrative. More broadly, the ongoing COVID-19 crisis has provided fresh justification for many of the social and economic policies long proposed by US Democrats — health care for all, stronger safety nets, entitlement protections. For the most part, I have viewed such proposals as fodder for future negotiations with Republicans, but as politically unrealistic given the partisan divide in Washington.

However, I now believe there’s a big paradigm shift in the making. It’s becomingly increasingly clear to me that economists close to the new administration want to fundamentally redefine how people think about government spending and responsible fiscal policy. If they can rewrite that narrative, so to speak, it could be…

MACRO
Jeremy Forster
Jeremy Forster
Fixed Income Portfolio Manager
Boston

With the Democrats having secured a narrow sweep of the White House and Congress, where will the new Biden administration set its policy focus? We know that pandemic control and economic stimulus will be top priorities, and I expect climate change, trade, and inequality to be on the list as well — with a range of investment implications.

Starting with the health and economic crises

In his January 14 speech, Biden made it clear that he sees a need for more stimulus, as he rolled out a US$1.9 trillion proposal. The new president’s negotiating skills will be tested as he works to move the proposal forward, and the details and dollar amounts will surely evolve. Ultimately, I think the next package will come by March 14, when unemployment benefits are set to expire. In addition to an extension of those benefits, the package could include a third round of stimulus checks, more state and local aid, and an extension of the eviction moratorium. In addition, I would expect more…

MACRO
Juhi Dhawan headshot
Juhi Dhawan
PhD
Macro Strategist
Boston

Previewing the Biden economic and foreign policy plans

In this 25-minute video, Geopolitical Strategist Thomas Mucha, Macro Strategist Michael Medeiros, and Multi-Asset Strategist Nanette Abuhoff Jacobson explore the investment implications of Biden’s domestic and foreign policy agenda and opine on which asset classes, factors, and industries they expect to outperform in this new environment.

video-iframe

MACRO
MARKETS
Thomas Mucha
Thomas Mucha
Geopolitical Strategist
Boston
Nanette Abuhoff Jacobson
Nanette Abuhoff Jacobson
Global Investment and Multi-Asset Strategist
Boston
Michael Medeiros
Michael Medeiros
CFA
Macro Strategist
Boston
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Archive

In my conversations with clients at the end of 2020, many of the same questions kept coming up. Here are five that topped the list, along with my thoughts in response.

#1: Given last year’s robust market gains and the current state of the economy, how optimistic are you about 2021?

There are always risks for investors to navigate. Notably, this latest surge in COVID-19 cases, hospitalizations, and deaths marks a tragic phase in the ongoing global health crisis. However, as we learned in 2020, markets are forward looking. I believe the recently approved COVID vaccines, gradually reopening economies, and easy fiscal and monetary policy should provide a supportive backdrop for potentially solid gains from risk assets in 2021. So optimism seems in order, but given that is the consensus view, I am only moderately bullish on global equities as of this writing.

FIGURE 1

There is pent-up demand to “get back to normal”

#2: What’s your take on what a Biden presidency might look like?

Many investors are concerned about a progressive Biden agenda. However, the president-elect’s razor-thin majorities in the House and Senate and a low likelihood of removing the Senate filibuster have dimmed chances for proposals like the “Green New Deal” and “Medicare for All.” That said…

MACRO
MARKETS

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Nanette Abuhoff Jacobson
Nanette Abuhoff Jacobson
Global Investment and Multi-Asset Strategist
Boston

In my conversations with clients at the end of 2020, many of the same questions kept coming up. Here are five that topped the list, along with my thoughts in response.

#1: Given last year’s robust market gains and the current state of the economy, how optimistic are you about 2021?

There are always risks for investors to navigate. Notably, this latest surge in COVID-19 cases, hospitalizations, and deaths marks a tragic phase in the ongoing global health crisis. However, as we learned in 2020, markets are forward looking. I believe the recently approved COVID vaccines, gradually reopening economies, and easy fiscal and monetary policy should provide a supportive backdrop for potentially solid gains from risk assets in 2021. So optimism seems in order, but given that is the consensus view, I am only moderately bullish on global equities as of this writing.

Figure 1

US Dallas Fed Mobility Engagement Index ("Social Distancing" Index)

#2: What’s your take on what a Biden presidency might look like?

Many investors are concerned about a progressive Biden agenda. However, the president-elect’s razor-thin majorities in the House and Senate and a low likelihood of removing the Senate filibuster have dimmed chances for proposals like the “Green New Deal” and “Medicare for All.” That said…

MACRO
MARKETS

ARCHIVED

Nanette Abuhoff Jacobson
Nanette Abuhoff Jacobson
Global Investment and Multi-Asset Strategist
Boston

In my conversations with clients at the end of 2020, many of the same questions kept coming up. Here are five that topped the list, along with my thoughts in response.

#1: Given last year’s robust market gains and the current state of the economy, how optimistic are you about 2021?

There are always risks for investors to navigate. Notably, this latest surge in COVID-19 cases, hospitalizations, and deaths marks a tragic phase in the ongoing global health crisis. However, as we learned in 2020, markets are forward looking. I believe the recently approved COVID vaccines, gradually reopening economies, and easy fiscal and monetary policy should provide a supportive backdrop for potentially solid gains from risk assets in 2021. So optimism seems in order, but given that is the consensus view, I am only moderately bullish on global equities as of this writing.

Figure 1

There is pent-up demand to “get back to normal”

#2: What’s your take on what a Biden presidency might look like?

Many investors are concerned about a progressive Biden agenda. However, the president-elect’s razor-thin majorities in the House and Senate and a low likelihood of removing the Senate filibuster have dimmed chances for proposals like the “Green New Deal” and “Medicare for All.” That said…

MACRO
MARKETS

ARCHIVED

Nanette Abuhoff Jacobson
Nanette Abuhoff Jacobson
Global Investment and Multi-Asset Strategist
Boston

With the prospect of a Democratic sweep looking more and more plausible with each passing day leading up to the US election, some observers note that such an outcome could usher in major policy shifts in taxation, health care, energy, and perhaps tech regulation for 2021 and beyond. Should investors start repositioning their portfolios accordingly? Not so fast.

Nick Petrucelli’s macro insights

I tend to be skeptical of government policy-driven trades playing out to the extent that financial markets often anticipate. Indeed, there have been several political changes in recent years whose impact on assets has turned out to be fleeting and, in some cases, just the opposite of…

MARKETS

ARCHIVED

Nick Petrucelli
Nick Petrucelli
CFA
Portfolio Manager
Boston
David Lundgren
David Lundgren
CMT, CFA
Director of Technical Analysis
Boston

With the US elections only a few weeks away and Democratic nominee Joe Biden holding onto a comfortable lead in most polls, the prospect of a so-called “blue-wave” scenario — where Democrats win the White House and seize control of both houses of Congress — looks more and more plausible with each passing day. (Granted, polls are notoriously fickle and a few weeks is an eternity in politics; anything could still happen between now and November 3.)

Many investors are wary of a blue-wave outcome, fearing it would spell bad news for the US economy and markets. But would it really? After taking a closer look…

MARKETS

ARCHIVED

Michael Medeiros
Michael Medeiros
CFA
Macro Strategist
Boston

Most of our inflation gauges suggest the figure is likely to fall towards zero in the next 6 – 12 months. But I think the ingredients are coming together to make higher global inflation (>3%) in the next 3 – 10 years more likely. I also expect the UK to be a bellwether for the higher longer-term inflation to come, given its recent history and the UK’s unique characteristics.

Six reasons why inflation should be higher in the next 3 – 10 years

I think there will be a series of negative supply shocks as there is likely to be:

  1. Less imported deflation due to stalling global trade and a larger services proportion of CPI baskets.
  2. A greater emphasis on local rather than global resources because supply chains will increasingly become localised and the government’s objective will be to protect national labour markets.
  3. Continued low productivity as governments will likely become more active at directing resources within economies and protecting…
MACRO
MARKETS

ARCHIVED

John Butler
John Butler
Macro Strategist
London

In late May, Japanese Prime Minister Shinzō Abe’s cabinet approved a second 2020 supplementary budget of ¥31.9 trillion (US$298 billion) to further combat the bruising economic impact of the COVID-19 crisis. This latest fiscal package provides financing help to struggling companies, subsidies to help firms pay rent, funds for health care assistance and support for local economies.

The headline ”business size” of the package — including assumed private-sector activity, loans from public financial institutions and actual new spending by the government — amounts to ¥117 trillion (US$1.1 trillion), matching the size of Japan’s first package delivered in April. All told, the nation’s fiscal policy response to the crisis thus far totals ¥234 trillion, roughly equal to 40% of its GDP.

The approval of the second package follows a May 22 joint statement issued by Haruhiko Kuroda, governor of the Bank of Japan (BOJ), and Tarō Asō, minister of finance, which read:

“The Government and the Bank are committed to making every effort to facilitate corporate financing and maintain stability in financial markets through the…

CORONAVIRUS
MACRO

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Paul Cavey
Paul Cavey
Macro Strategist
Hong Kong
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