A “V-shaped” economic recovery with clarity regarding the rollout time of the Covid-19 vaccine and the continual fiscal policy support will generate a positive outlook for stocks and credits come 2021.
Anytime the economy as a whole recover quickly and returns to its original levels before the recession without drawing big sectors or groups with it, it leads to what is called a V-shaped Recovery. This is an overall image of the modern-day American economy with a period of recession following a period of economic growth.
Morgan Stanley’s analysts in their 2021 forecast advise investors to balance their stocks and bonds against government cash and debt and to sell US dollars. Analysts think that volatility will diminish and investors should be “patient” in the commodity market.
Global recovery would be sustainable and at the same time, supported by policies that match the normal post-crisis scenario. So, there is hope for 2021. Investors need to keep faith and trust in recovery.
Global stocks hit an all-time low on Monday, and there is optimism that the predicted introduction of the vaccine and additional fiscal stimulus from the United States will support the global economy. But sceptics say the short-term projection is perplexing as countries rely on lockdowns to tackle the outbreak of the new virus and legislators debate the size of US aid spending.
The escalating Covid-19 case could hamper economic recovery, particularly in the non-existence of additional financial support. High-frequency readings correspond to slow economic growth, but it doesn’t contradict it.
There are increasing cases of Covid-19 in the United States, especially in the Midwest. Deaths and hospitalizations are also on the rise. However, Moderna Inc.’s preliminary vaccine effectiveness supported by the Pfizer Inc. vaccine success together with BioNTech SE strengthens the long-term outlook and drives stock growth.
Good news for vaccines and rising stock prices.
Goldman Sachs is expecting a bigger “V” global economic recovery than consensus forecasts, and now the recovery may be bigger than expected for a coronavirus vaccine.
Global stocks rose on Monday after Pfizer and BioNTech announced that the potential vaccine was more than 90% effective in stopping COVID-19 among people with no evidence of the previous infection. Dr Albert Burla, President and CEO of Pfizer, described the results as a significant achievement for science and humanity.
The news came shortly after Joe Biden claimed victory in the US presidential election, both incidents could have a potential impact on global growth prospects.
Analysts from Morgan Stanley, JPMorgan Chase & Co, and Goldman Sachs Group Inc., all project a positive outlook for equity. JPMorgan’s analysts Marko Kolanovic said the US election results have sparked a heated debate about a potential bullish trend in the market and Goldman Sachs’ David Costin said he expects society to gradually get back to normal next year. The Morgan Stanley team, on the other hand, doesn’t expect a smooth upward move and indicated that serious problems still remain. The risk, according to the report, includes a stronger-than-expected winter Covid-19 wave and a comeback of long-term tightening.
The investment challenges of the report are as follows:
• Base forecast for the S&P 500 Index is anticipated to reach 3900 by the end of 2021.
• Ten-year US Treasury yields projections are 1.45% by the end of 2021.
• The US Dollar Index will decline by about 4% by the end of 2021.
• The high-yield credits would be more beneficial compared to investment grade credits and leveraged loans compared to high-yield bonds.
• Gold forecasts were lowered from the previous $1950 to an average of $1825 per ounce in 2021 due to the expected economic recovery.
2021 economic recovery and beyond
How the economy will play from 2021 onwards will depend on how the pandemic will progress next year. If the number of new cases continues to be worrisome and leads to more restrictive action, the forecast of the 2021 GDP growth target by a few percentage points.
The seriousness of the impact of the 2021 pandemic on economic growth will depend on the success of conventional government policies. There must be security in policies and strategies that can increase investor confidence as well as consumer sentiment in these uncertain times.
The forecast for growth is cautious as the risk balance is skewed down due to the uncertainty caused by the Covid-19 pandemic.
Monetary policy for long-term expansion in developed countries is also contributing to the risk which could result in capital mobility and volatility, together with the bias against safe assets like debt instruments. Analysts suggest that investors should overweigh equities and credit.