Shawn Snyder is the head of investment strategy for Citi Personal Wealth Management. The opinions expressed in this commentary are his own.
As more Covid-19 vaccines are becoming readily available, 2021 offers renewed optimism that we may expect a rebound of the economy — and of life in general. The rapid development and distribution of Covid-19 vaccines has been nothing short of extraordinary and should allow daily life and the global economy to move from hurting to healing in the year ahead.
The next few months will likely be difficult as Covid-19 cases continue to rise across many parts of the world, but there is hope. With several vaccines showing over 90% effectiveness in blocking infection in clinical trials, optimism has grown that the global population can achieve herd immunity over time. Citi’s economists believe that some form of herd immunity could be reached in developed markets by the fourth quarter of 2021.Barring an unforeseen setback, the distribution of these vaccines should enable the global economy to recover more quickly and robustly than during a traditional recession, with the global economy in sound shape prior to the pandemic. Citi Private Bank’s Chief Economist Steven Wieting believes that the global economy should rebound from an annual contraction of negative 4% in 2020 to a positive growth rate of 4.2% in 2021. This economic recovery will likely be accompanied by a notable rise in global trade volumes, with the International Monetary Fund forecasting that world trade volumes in goods and services could rise by 8.3% year-over-year in 2021. Some of this optimism has likely already been priced into the markets. After all, financial markets often serve as leading indicators, with asset prices often reflecting investor expectations for the future, rather than current conditions. Yet we continue to expect that there is further room to run in certain sectors and regions. The “stay-at-home” stocks that saw significant price appreciation in 2020, including cloud-computing, technology, exercise equipment and home repair, will likely continue to be in demand, for example. But investors should also consider looking for opportunity in stocks with more room to recover from the damaging impacts of Covid-19, like industrials and financials. Read MoreThe year ahead looks very promising, but it is not without risk. The development of Covid-19 vaccines is very encouraging, but the logistics and distribution challenges ahead are daunting. Virus mutations are also a cause for concern, but we believe humanity will once again come together during a time of great stress to overcome these challenges. Financial markets are unlikely to make it through the year completely unscathed — a market pullback or correction almost assured — but I am bullish on the year ahead and believe that investors will once again be rewarded for taking on these risks.
Source: edition.cnn.com