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TORONTO, Dec. 17, 2020 /CNW/ - Following the global challenges experienced in 2020, the current optimism is expected to carry into 2021 as economic conditions continue to improve, according to BMO Global Asset Management's (BMO GAM) Multi-Asset Solutions Team's 2021 outlook report titled The Great Normalization.
With rapid vaccination expected to take place in the first half of the year, the stage is set for strong growth recovery in 2021.The services sector should be a principal beneficiary as the in-person economy returns in the post-pandemic world. Additionally, fiscal and monetary support, which was crucial to economies and markets in 2020, is expected to continue into the new year. Absolute rates are also expected to remain at historic lows, leading to an environment supportive for equities and broader risk markets globally.
"By mid-year we expect certain sectors, such as travel and tourism, to bump against capacity constraints as long-delayed holidays and other spending materialize," said Frederick Demers, Director, Multi-Asset Solutions, BMO Global Asset Management. "As normalcy returns, consumer spending is expected to grow and unemployment rates to be meaningfully lower than current rates. Heading into 2021, we are optimistic we will see improved economic conditions and better times ahead."
Canadian and U.S. Outlook
The Canadian economy has recovered in recent months as a result of an aggressive fiscal response; however, it is expected to lag behind the U.S. and global recovery. The fiscal response has led to a surge in debt, with the federal deficit expected to exceed C$150 billion for FY-2021/22 as support for health, wage and income support programs continue.
The U.S. economy and financial markets are expected to perform well on fiscal, monetary and vaccine developments. The Federal Reserve's "average inflation targeting" approach will mitigate pre-emptive tightening on inflation pressures and interest rate increases. There are questions around equity market valuations; however, BMO GAM's long-term valuation modeling indicates that equities are reasonably priced at current levels.
Equity Outlook
There is a favorable medium-term view on equities heading into 2021 given expectations for a vaccine-driven economic recovery and revitalized global corporate earnings. Current positioning includes:
- Relatively neutral on Value versus Growth
- Overweight global equities versus fixed income
- Overweighted on Small-Caps versus Low-Vol stocks as a reflation play
- Overweighted on emerging-market equities
Energy Sector and the Green Wave
Oil prices decreased around 25 per cent this year as demand fell and inventories grew. Widespread pandemic-induced lockdowns are a major factor in this performance, although there was a prior excess oil supply. As life and economic activity normalizes into 2022, oil demand should rebound but at a slower rate than the broader pace of the economy.
However, COVID-19 will also leave a permanent imprint on behaviours such as business travel and work-from-home schemes. Additionally, there is a growing emphasis on green energy projects as Canada and other countries focus on promoting less carbon-heavy industries.
Responsible investing continues to gain traction in the investing industry, with a focus on environmental, social and governance (ESG) criteria and the development of strategies that can positively affect the world.
To view the full report, please click here.
Forward Looking Statements
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The above mentioned report has been prepared by the BMO GAM Multi-Asset Solutions Team (MAST) and is intended for informational purposes only. This report represents their assessment of the markets at the time of publication. Those views are subject to change without notice as markets change over time. The information contained herein is not, and should not be construed as, investment, tax or legal advice to any party. Investments should be evaluated relative to the individual's investment objectives and professional advice should be obtained with respect to any circumstance. Past performance is no guarantee of future results.
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About BMO Financial Group
Serving customers for 200 years and counting, BMO is a highly diversified financial services provider - the 8th largest bank, by assets, in North America. With total assets of $949 billion as of October 31, 2020, and a team of diverse and highly engaged employees, BMO provides a broad range of personal and commercial banking, wealth management and investment banking products and services to more than 12 million customers and conducts business through three operating groups: Personal and Commercial Banking, BMO Wealth Management and BMO Capital Markets.
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