The economic recovery continues

February 26, 2021

 

As investors, 2020 is a reminder that market performance is not always tied to economic performance. While the overall economy languished last year, certain sectors thrived and the market as a whole finished the year in positive territory. While this disconnection between economic performance and the markets is not unusual, a common discussion at the RBC Dominion Securities Portfolio Management conference in January was the unprecedented speed with which the markets declined and subsequently recovered.

Our firm's annual conference was virtual this year, yet still provided an opportunity to meet with and share thoughts with various market strategists and analysts. As we have in years past, we wanted to reach out to highlight areas that we are keenly watching and how we are positioning your portfolio as we move forward this year.

We have written before about the tremendous amount of stimulus that the central governments globally have, and continue to, inject into the economy. The U.S. government is on the cusp of approving a massive $1.9 trillion dollar stimulus package, following on last year's $2.2 trillion dollar U.S. Cares Act, which was the largest stimulus package in U.S. history. Here in Canada, we have followed with equally historical stimulus spending.

These various stimulus measures have helped the economy return to slow and positive growth in the late half of 2020, which we expect to continue into 2021, picking up strength in the latter half of this year. In addition to government stimulus, individual consumer savings have increased substantially. As lockdowns ease, this money will flow into the economy, supporting corporate revenues and profits, which we expect will translate into higher equity prices.

We rebalanced your portfolio in January and adjusted our positioning to increase exposure to more cyclical areas of the markets by adding companies whose revenues and profits are expected to benefit from a return to a stronger growing economy.

 

We are closely watching the roll out of the COVID-19 vaccine in Canada and around the world and recognize and anticipate that there will be bumps along the road. As we navigate throughout the year, we will take these bumps in stride while looking for opportunities for your portfolio, seeking to add quality businesses that will grow over time.