Global Investment Committee Outlook: Especially buoyant non-US equities

The global economy’s recovery should continue, above consensus

Although some on the committee agreed with the market consensus for a moderate continuation of economic growth and equity markets, and a few were even more cautious, especially regarding increased fears of inflation later in 2021, the majority agreed with a more positive scenario in which the global economy outperforms market consensus, while equities, especially those outside of the US, rally sharply. The scenario also predicts that vaccines will turn pessimism into optimism among a much wider number of investors and that geopolitical risks will not hamper economic activity. This latter point is especially important in Europe, where BREXIT fears have constrained equity performance. Meanwhile, we continue to expect Republican control of the Senate, leading to a mollified version of the Democratic agenda, and thus, that the economic recovery will have a disinflationary tenor globally.

For the US, GDP should increase 4.2% Half on Half Seasonally Adjusted Annualized Rate (HoH SAAR, as used in all references below) in both the 1H21 and 2H21 periods, vs the 3.4% consensus estimates for each. Personal consumption should continue to recover, especially as vaccines improve consumer sentiment, while private capex will improve in most sectors, especially tech spending. Notably, Boeing’s aircraft production will likely be an important positive factor for economic growth after the 1Q21. However, construction spending outside of the infrastructure sector will likely be constrained. Government spending should contribute to growth due to the Democratic agenda, while net foreign trade will likely become more neutral.

Eurozone GDP plunged the most in the 2020, so its rebound should be the strongest among the G-3 at 2.7% HoH SAAR and 5.2% in the 1H and 2H, respectively, vs the 1.3% and 4.5% consensus. Meanwhile, Japan’s will likely be 3.3% and 3.5%, vs consensus estimates of 2.5% and 2.8% for those periods. Deep consumer fears shifting toward optimism should be particularly pronounced in these two regions, with business confidence also boosting capex to a surprising degree.