Investing Is Not a Trivial Pursuit

Raymond James Chief Investment Officer Larry Adam examines the current investing environment through the lens of classic games.

Americans, bored in their COVID-induced bubbles, turned to board games for fun last year, boosting sales 300%. They rolled the dice, drew the cards, and buffed the skills of cooperation, problem solving, emotional intelligence, and reflective logic – the same competencies critical to successful investment strategies. So, we couldn’t help looking back nostalgically to our favorite games – and probably yours – as we look forward to crafting a sustainable investment game plan.

Like players in Clue®, “The Classic Mystery Game,” we have to be good detectives, hunting for clues to either affirm or alter our views. These unprecedented times are a whole new game, often demanding a fresh financial toolkit to solve the mysteries of the market. In other words, it’s no Trivial Pursuit®.

Remember how good you felt, passing Go in Monopoly® and collecting $200? Now imagine the U.S. economy as consumers pass Go with a collective $2 trillion in excess spending capacity as a result of Congress’ generous, stimulus-driven Community Chest. That chest continues to grow with the Child Tax Credit beginning in July and prospects for additional government infrastructure packages. While taxes are likely to move higher for corporations and the wealthy, the Income Tax card will be less onerous than originally outlined. With the U.S. debt ceiling likely raised by the end of July or soon thereafter, there is little Chance of government default or bankruptcy.

Of course, the real game-changer for the economy wasn’t the Get Out of Jail Free card; it was the “Get Out of the House for Free” vaccine process that has inoculated more than 60% (and growing) of U.S. adults. Now that consumers can join friends for dinner, go to sporting events and concerts, and travel on planes, the U.S. has regained all of its economic activity lost during the recession. The hot real estate market proves that people are buying properties in classic Monopoly® fashion and higher home prices are a key driver of the positive wealth effect for consumers. Once more, economic growth should go racing around the board on the back of robust consumer spending, rebuilding inventory levels, recovering foreign economies, and rising U.S. employment (expect an average of 500,000 new jobs a month over the next six months). As a result, 2021 GDP growth will likely meet, if not exceed, our expectation of 6.2% and remain strong into 2022.

In the 1960s, Milton Bradley introduced battery-powered Operation®, which tested kids’ ability to remove butterflies in the stomach and other ailments without setting off a buzzer. As the economy heals, the money doctors at the Federal Reserve (Fed) will be delicately removing some of the ultra-accommodative monetary policy that nursed the economy back to full speed. The trick: remove pieces from the accommodative policy without being zapped by surging inflation or short-circuiting the economy. The Fed will need to keep a steady hand and be patient. If inflation proves transitory and peaks during the third quarter as we expect, the Fed will be able to taper its bond purchases by late this year/ early next year and not raise rates until 2023.