A Post-Election Economic & Market Outlook In 10 Charts Or Less

GDP Growth

The consensus forecast from The Wall Street Journal calls for a continuation of the current economic recovery, with anticipated year-over-year growth rates of roughly 3%–3.5% through 2021 and into 2022:

Figure 1_GDP growth

The outlook is even more positive for most non-U.S. economies:

Figure 2_2021 GDP Growth

Translation: A generally positive environment for “risk on” assets.

Earnings

After the horrific (but priced in) second-quarter earnings numbers, the consensus is for steady improvement through 2021:

Figure 3_ROE

Again, the outlook for earnings outside the U.S. is even stronger (based, in part, on the fact that the U.S. came out of the initial pandemic-induced recession faster because of higher stimulus levels):

Figure 4_2021 EPS growth

Translation: A generally positive environment for “risk on” assets.

Interest Rates and Spreads

We maintain our outlook that (a) rates may grind higher from here as the economy improves and inflation picks up marginally, (b) the yield curve will continue to steepen, (c) we generally remain in a “lower for longer” rate environment and (d) credit spreads have retraced most of their “blow out” in the early days of the pandemic, but still have potential to move lower:

v

Figure 6_US corporate and high yield

Translation: We maintain our positioning of being under-weight duration and over-weight credit, with a focus on quality security selection, especially in high yield.

Inflation

There are pockets of higher inflation in specific sectors or industries (food, automobiles, suburban home prices, etc.), but the overall inflation picture remains largely benign (remember that the historical Fed “target” rate for inflation was ~2%):

Figure 7_FRED

Translation: A generally positive environment for “risk on” assets.

Central Bank Policy

The Fed consistently has signaled that it will remain “accommodative” into the foreseeable future, and it is willing to let inflation “run hot” if it means allowing the economy to continue to recover:

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