OUTLOOK 2021 INVESTMENT STRATEGY GROUP - JANNEY MONTGOMERY SCOTT LLC Published: December 14, 2020
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INVESTMENT STRATEGY GROUP
OUTLOOK 2021
JANNEY MONTGOMERY SCOTT LLC
Published: December 14, 2020
The prospects of a post-pandemic world have brightened. We expect macroeconomic conditions to evolve positively as organic growth ensues due to the reopening of global economies augmented by fiscal and monetary initiatives as well as a therapeutic response to COVID-19, which builds a supportive and positive impulse that persists through 2021 and beyond. Certainly, we host concerns about the remaining level of underemployment, the pace of inoculations that speed the world closer to economic normality, tensions in the Middle East, and China’s drive toward hegemonic superiority. Yet, none turns aside our baseline expectation.
I N V E S T M E N T S T R AT E G Y G R O U P
OUTLOOK 2021
OVERVIEW
While we did not build a global pandemic into our forecasts last year, the outcome for the markets settled about where we
expected. Stocks posted a strong year with many global bourses, including the large cap U.S. proxy, generating returns in excess
of historical averages. Bonds benefited from the massive injection of monetary liquidity and accommodative policy setting to
deliver handsome gains as well.
Concerns that some of the recovery was artificially induced by the unprecedented level of intervention lead some to remain
skeptical the advance can continue. We are not among them. The key is the transition from liquidity to sustainable growth and
there are myriad signs of that handoff occurring.
Economy & Equity Markets...........................................................................................................................................................Page: 4
• A renewed economic expansion is underway. The nadir of the pandemic-induced contraction occurred in April, leading to a
subsequent robust and sustainable rebound.
• Rapidly rising corporate profits and the lack of alternatives for investors seeking attractive real returns is a setup for equities to
climb higher, perhaps substantially so.
• Foreign equities are attractive, but the catalyst to unlocking their value is virus mitigation and a proportional response to the
significant fiscal and monetary policies enacted.
• Central banks are highly unlikely to rescind their monetary largesse anytime soon. Indeed, many stand ready to do more as
needed to reflate their respective economies.
• A weaker dollar should boost commodities. The recovery in demand on the back of the improving growth outlook will favor oil
and precious/industrial metals.
• Geopolitical policy uncertainty will recede as the incoming Administration takes a multilateral approach to trade and other
matters, further helping to support global risk assets.
Fixed Income & Interest Rates.....................................................................................................................................................Page: 8
• It has been an exceptional year in fixed income, with returns marred by a short-lived credit crisis, but ultimately saved by plunging
interest rates and Federal Reserve action.
• We anticipate long-term interest rates will continue to rise (albeit unevenly) and credit conditions will improve as the economic
growth cycle persists.
• Cash and equivalent yields will continue to be anchored by the zero-bound policy authored by monetary officials, pressing and
holding real returns into negative territory.
• The release of unused credit reserves from the banking system could provide a surprising tailwind for credit-sensitive assets,
pulling spreads tighter.
• In general, it remains a time to take credit risk and not interest rate risk, so we favor shorter-term, lower-rated bonds for better
returns in the coming year.
• Our favorite sectors are short-term taxable municipal and BBB-rated corporates, or, for those with the appropriate risk budget,
short-term BB- and even B-rated high yield bonds.
© JANNEY MONTGOMERY SCOTT LLC • MEMBER: NYSE, FINRA, SIPC • JANNEY OUTLOOK 2021 • REF: 168315-1220 • PAGE 3 OF 10
ECONOMY & EQUITY MARKETS
Our base case is that the vaccines will allow a progressive reopening of the economy
at large, and importantly be accompanied by the sectors currently still under full or
partial lockdown.
The news that vaccines developed by Pfizer-BioNTech and Moderna are around 95%
efficacious is very encouraging. The Oxford-AstraZeneca announcement is also a source
of optimism, even if the trial results have been challenged. Moreover, other vaccines are
currently in the final testing stage, which could bring even more options to the public.
Some healthcare experts speculate that approximately 1.5 billion people globally will
MARK LUSCHINI, CMT be vaccinated by next winter if all goes well. That will lead to a further improvement in
Chief Investment Strategist
employment, consumer and business sentiment, and aggregate demand.
President and Chief
Investment Officer, Janney
Capital Management PATH TO NEW NORMAL which would defer the more positive growth
outlook we envision beginning sooner in the
Mark Luschini serves as With less fear of getting infected, consumers New Year.
Janney’s Chief Investment should return to shops, restaurants,
Strategist and leads the hotels, cruise ships, airplanes, etc. This
Investment Strategy Group, Stimulus and Growing Deficit
which sets the firm’s view on will have a beneficial impact on business
macroeconomics, as well as capital expenditures, which responds The long-term implications of aggressive
the equity and fixed income to consumption with a lag, along with policy stimulus will not likely be benign.
markets. In addition, Mark profit growth. Increased profits refuel the What form it takes may be a matter
is the President and Chief business cycle and beget hiring which of debate, but there is little doubt it will
Investment Officer of Janney
begets spending—critical as it represents have consequences.
Capital Management (JCM),
the asset management approximately 70% of the U.S. economy.
As a share of U.S. GDP, total debt has spiked
subsidiary of Janney
Montgomery Scott. Under Despite this optimistic base case, investors near a record high and, in particular, total
his leadership, JCM has must have contingencies ready. Additional nonfinancial debt has surged to new all-time
delivered competitive results waves of infections cannot be entirely ruled highs. This reflects two phenomena. First,
across its suite of investment out between now and when the vaccinations the denominator of the ratio—GDP—has
strategies and grown its are administered to large enough of the collapsed. So, while debt was already close
assets under management
general population to begin to achieve to 80% of GDP prior to the pandemic, the
to more than $3.5 billion.
herd immunity. Therefore, lockdowns might collapse in GDP in the second quarter of
Mark has spent more than 2020 grew the proportional percentage of
thirty years in the investment
continue deeper into 2021 than anyone
industry. He draws on that would hope. debt outstanding. Second, total debt also
experience to speak on topics highlights the rapid increase in government
related to macroeconomics Thus, we could still face periods of deficits due to the combination of 1) the
and the financial markets at downward pressure on activity, yields, and budget shortfall that already existed and was
seminars, client events and stocks. Indeed, even if the vaccines enjoy growing, plus 2) the deficit spending to fund
conferences. He is frequently widespread adoption, near-term threats to
quoted in publications
the stimulus programs to date.
economic activity remain. The realization
ranging from the Wall Street
that the end of the pandemic is close This problem is repeated around the world.
Journal and Barron’s to
the New York Times and may prompt a temporary period where As Chart 1 demonstrates, nonfinancial debt
USA Today. In addition, he households hunker down and behave in levels across developed and emerging-
regularly appears in various a very conservative fashion. After all, few market countries alike are rising rapidly.
media outlets including consumers will want to contract the virus Moreover, debt loads in emerging markets
CNBC, Fox Business News, are also extremely elevated. The latter is
and Bloomberg Television
just before a vaccine becomes available.
and Radio. He has an particularly worrisome since in many cases,
Moreover, the sight of the end of the that debt is dollar-denominated. The recent
undergraduate degree in
Psychology and an MBA lockdowns reduces the fiscal authorities’ weakness in the dollar, a trend we expect
in Finance from Gannon urgency to provide additional and/or to continue, will help for now. However, the
University and holds the necessary support to the underemployed absolute levels weigh on the service costs
Chartered Market Technician population, small businesses, and even
(CMT) designation from
and crowd out other necessary investment
certain levels of government. These many of these countries need to make in
the Market Technicians
Association.
dynamics could prompt a deep contraction order to evolve and grow.
in spending in the first quarter of 2021,
© JANNEY MONTGOMERY SCOTT LLC • MEMBER: NYSE, FINRA, SIPC • JANNEY OUTLOOK 2021 • REF: 168315-1220 • PAGE 4 OF 10
Chart 1: Private and Government Debt as Percentage of GDP exaggerated during the pandemic, it should. Between a
practice of yield curve control as a means of pinning interest
rates low, as is currently being practiced by the Bank of
Japan and the Reserve Bank of Australia, or the Bank of
England explicitly stepping in to buy the government’s
issuance of bonds to spend on coronavirus relief programs,
it is just around the corner if not already here.
While that likely has inflationary consequence, it is probably
more of a worry for later in the decade than 2021. Keep
in mind that inflation is not a linear process. Once it starts
to rise, it becomes very hard to control. In this regard,
the experience of the late 1960s is extremely instructive.
Through the 1960s boom, inflation was well behaved,
contained between 0.7% and 1.2%. Then it started to rise
in 1966, and quickly hit 6.1% by 1970. While the average-
inflation target the Fed recently adopted is well intentioned,
in an environment where governments are unlikely to
curtail deficits in any hurry, it could easily unleash a long-
term inflationary trend. Stay tuned.
China’s Global Influence Remains Strong
In our judgment, the biggest geopolitical risk remains
China, although any re-engagement with Iran to allow the
U.S. to pivot militarily toward China could be tricky as well.
China has expanded its global influence. In the wake of the
2008 crisis, the Communist Party was forced to change its
national strategy to better handle demographic decline,
structural economic transitioning, and rising social instability.
Slower trend growth increases long-term risks to its single-
party rule, and that caused the Chinese Communist Party
to shift the basis of its command-control from rapid income
growth to nationalism. Hence, Beijing has aggressively
sought a technological “Great Leap Forward” to improve
productivity while adopting a much more assertive foreign
policy to build a sphere of influence in Asia Pacific. Indeed,
its recent declaration of a “dual circulation” policy speaks to
(Source: Bank for International Settlements) the need to continue exporting while buying time to build its
internal consumption and self-reliance.
Going forward, either rising savings or faster nominal GDP
President Xi Jinping’s “New Era” has led to a backlash from
growth will be needed to cause the debt ratios to decline.
foreign powers, most markedly because of COVID-19, but
The first option is difficult; increasing savings is deflationary
also with the removal of Hong Kong’s autonomy, saber-
and it could worsen the debt arithmetic by keeping real
rattling in neighboring seas, and politically motivated
interest rates stubbornly high. Instead, we expect fiscal
boycotts of neighboring countries like Australia. China
and monetary policy to work in tandem to lift inflation and
is increasingly fearful of a U.S. containment policy and is
deflate the global debt load.
adopting a new five-year plan built on accelerating its quest
Modern Monetary Theory and Inflation for economic self-sufficiency and technological leadership.
The rising popularity of Modern Monetary Theory (MMT) President-elect Biden could seek to engage China to
fits within this paradigm shift. manage against a dangerous rise in tensions, while
approaching allies with a desire for multilateralism. Biden
MMT posits that as long as governments issue debt in their will start by trying to lower tensions with Beijing, which is
own currency, central bank money printing can finance the positive for global equity markets until otherwise indicated.
deficit. The only constraint on policymakers becomes the However, if China becomes convinced that Biden is not
level of inflation that society tolerates. If this sounds familiar attempting a real diplomatic reset, but is instead pursuing
given the actions of the Federal Reserve since the Great a containment policy and technological blockade, then it
Financial Crisis, and that which has only become even more may turn increasingly aggressive over rising Taiwanese pro-
© JANNEY MONTGOMERY SCOTT LLC • MEMBER: NYSE, FINRA, SIPC • JANNEY OUTLOOK 2021 • REF: 168315-1220 • PAGE 5 OF 10independence sentiment. A Taiwan Strait crisis is therefore EQUITY MARKETS
possible and that could have a significant impact on markets,
since it sources many global products and its seas are a The following comments express of our central view that
conduit for a tremendous amount of trade. This situation will the recovery will persist at an above-trend pace in 2021.
demand close monitoring in the months to come. This, in turn, should result in higher stock prices, especially
for value-oriented, cyclical stocks, as well as higher yields
Economic Growth Slows, but Not Fading and commodity prices.
Turning back to the domestic front, data has shown a loss • G
lobal Equity Markets – U.S. equities should continue
of momentum in the last several weeks, but not so much to to do well. However, it is time to stage capital into
suggest that the recovery is fading materially. those equity bourses that are levered to economic
growth, such as Europe and Japan. Also, favor emerging
Various regional Federal Reserve surveys still convey a markets as they should benefit from the increased
positive message about activity in geographies throughout demand for commodities.
the country, job growth has continued, wages are
improving, savings remain elevated, and consumer debt • Sectors – Overweight Industrials, Materials, and Energy,
levels—and the service cost associated with it—remain and look to add Financials as the yield curve steepens.
very manageable. Housing continues to elicit remarkable Sectors that are less economically sensitive, such as
strength, and residential investment—important given that Staples and Utilities should be Underweight. Also, favor
it is unmatched in terms of the multiplier effect it has on small company stocks over their larger brethren as they
economic activity—is growing smartly. will prosper while domestic conditions strengthen.
While the Senatorial runoff in Georgia, scheduled for • Commodities – A weaker dollar and the emergence
January 5th, is a wild card given it could tilt the balance of inflation should boost the prospects for this complex.
of political power from gridlock if Republicans keep one Increasing demand should help oil prices to rise while
or both seats, to one-party rule if not. Regardless, the industrial and precious metals stand to benefit from
marginal advantage the Democratic Party would hold if increased manufacturing activity, alternative energy
they win both seats probably means some compromise on adoption, and profligate fiscal policies designed to spur
party issues will be needed for significant legislative action economic growth.
to be taken. That should help to neutralize the worries of Our prognostication for the U.S. stock market’s path
market participants that higher corporate taxes and tighter forward includes three potential outcomes that emanate
regulation would impair profit margins and dim the earnings from various economic scenarios that could unfold. We
picture for corporations. assign a likelihood to each to express our confidence level
in the forecast presented. In preview, we skew decidedly
Brighter View of What is to Come bullish which is indicative of our belief in the sustainability
The swift recovery in business activity, a reduction in global of the global equity rally.
economic uncertainty, a likely fiscal package, and the
launch of a series of vaccines with high efficacy, lead us to
be quite sanguine about the macroeconomic backdrop.
The fact that governments around the world have acted
post haste in adopting similar policies to restore activity
to pre-pandemic levels only reinforces our view. While
the surroundings of the moment are still murky, even grim
in some cases, there are very positive developments
occurring. Moreover, a means to thwart the coronavirus
from inducing further human suffering and economic
damage, which was once thought to be a distant hope, is
now approaching rapidly. The new normal, may include a
different way to do business, dine, shop, and live, but at
least it will be a safer path forward, and that pays dividends.
© JANNEY MONTGOMERY SCOTT LLC • MEMBER: NYSE, FINRA, SIPC • JANNEY OUTLOOK 2021 • REF: 168315-1220 • PAGE 6 OF 10VARIOUS ECONOMIC SCENARIOS AND PROBABLE OUTCOMES
S&P 500 is 3,667 at the time of this writing.
Scenario 1: Mini Boom Scenario 2: Sturdy if Unspectacular Growth
The economy experiences a slight downshift in growth early Growth in the economy stalls. However, Congress is able to
in the year due to coronavirus mitigation efforts and the fiscal settle on a modest relief package, albeit one that leaves many
cliff, which hits for more than 10 million workers that saw their without income near previous employment. The adoption of
pandemic relief assistance programs expire in late December. the vaccinations is slower than hoped, leading to an extension
of social safety measures longer than anticipated.
However, the economy’s momentum carried over from
2020 is sufficient for employment to continue to improve. In turn, delays in reopening industries such as travel, leisure,
Ultimately, a new fiscal package is delivered to extend relief and entertainment, which represent 10% of the economy but
to those displaced workers until they can be reabsorbed 25% of employment, dampens consumer confidence.
into jobs that are opening quickly as mitigation protocols
Still, a supportive Federal Reserve and low yields on
begin to loosen.
interest-bearing instruments leads investors to buy stocks.
Commercial distribution of vaccines for the coronavirus reach With the output gap remaining high, inflation stays at non-
enough mass around mid-year to restore activity closer to threatening levels, therefore interest-rate sensitive sectors
pre-pandemic levels. The combination ignites a spurt of perform well.
growth at an elevated rate.
Growth stocks continue their leadership, with Technology
Risk assets rally as it occurs concurrent with similar and tech-related, Health Care, Utilities, and Consumer
sequencing around the world. While U.S. equities rise, led by Staples, doing well. While the Biden Administration turns
pro-growth sectors such as Industrials, Materials, Energy, and the heat down on foreign policy matters in general, the
Financials, better returns are generated in overseas markets bipartisan support for a tough-on-China stance keeps trade
where the gearing is more heavily tilted toward cyclicals. tensions elevated and Sino-American relations iced.
Still, rising corporate profits and estimates for double-digit The defensive nature of the S&P 500 keeps it among the
gains through 2022, coupled with multiple expansion, lead performance leaders once again and global investors bid
the S&P 500 to 4,500. the market higher by about 6% to 3,900.
Probability: 65% Probability: 30%
Scenario 3: Structural Issues Linger BOTTOM LINE: ENSEMBLE FORECAST
While the economic recovery has been remarkably strong The economy is mending. The pace of growth could
to date, the policies unleashed to spur its growth have been accelerate if three things conspire:
unprecedented. The level of global indebtedness is spiking, 1) Organic growth from the natural release of pent-up
some dollar-denominated debt loads in countries like Turkey,
demand as reopening continues,
Chile, and South Africa are nearly untenable, and in some
cases monetary policy has spilled into an extension of fiscal 2) another fiscal relief stimulus is provided to supplement the
policy thereby blurring the lines between institutions that void in incomes caused by the involuntary job losses, and
heretofore operated with at least feigned independence.
3) the swift and wide adoption of available vaccines leads
The new Administration will engender enough bipartisanship
to herd immunity and socioeconomic normalcy perhaps by
to pass some tax increases and tighten regulations. Other
the middle of the year.
fiscal accords are viewed suspiciously by market participants
and while the economy grows, the stock market’s valuation There are domestic concerns to overcome, but more
compresses as the risk premium expands. Concerns so, it is exogenous risks that stand as a greater threat
about subdued growth due to structurally higher levels to undermining our sanguine views. Accounting for the
of unemployment and softening demand incite whispers
probabilities assigned to the scenarios presented, our
of deflation. Efforts to bring back production of goods of
ensemble price target for the S&P 500 Index is up more
national interest and other industry is disruptive to supply
than 15% to roundly 4,250.
chains and the cost of goods rises, inviting an alternative
theory of stagflation into consideration.
Bonds rally or fall depending on the scenario that unfolds,
but in either case, stocks decline on lower profit expectations
and S&P 500 index falls to 2,950.
Probability: 5%
© JANNEY MONTGOMERY SCOTT LLC • MEMBER: NYSE, FINRA, SIPC • JANNEY OUTLOOK 2021 • REF: 168315-1220 • PAGE 7 OF 10FIXED INCOME & INTEREST RATES
For the fixed income markets, and indeed many of our personal experiences, 2020 has
been a play in three acts. There was the benign introduction, then a seemingly impossible
conflict, and finally a long resolution—which continues.
At risk of sounding self-congratulatory, we Chart 2: While the Fed Will Likely Pin Short-Term
identified market plumbing in last year’s Yields, Longer-Term Bond Yields Should Rise
Moderately (Dotted Lines Represent Forecasts)
Outlook 2020 report as the source of the
financial conflict that emerged and Fed 2.50%
rate cuts as the cure. Both came to pass,
2yr Treasury 10yr Treasury 30yrTreasury
2.15%
GUY LEBAS, CFA® although the catalyst was unexpected and 2.00%
Chief Fixed Income Strategist tragic. Similarly, we identified the rebound 1.50%
Director of Custom Fixed in credit in our Mid-Year 2020 Outlook, and 1.35%
Income Solutions, Janney credit has indeed rebounded impressively. 1.00%
Capital Management 0.50%
Guy LeBas is responsible SUPPORT FOR GROWTH 0.28%
0.00%
for providing direction to THROUGH 2021
the firm’s clients on the
macroeconomic, interest With about two weeks left in the year, (Source: Janney Investment Strategy Group; Bloomberg)
rate, and bond market benchmark 10-year Treasury yields declined
investing climate. in 2020 to 0.93% from 1.92% after having
Guy authors bond reached all-time lows over the summer. Recent qualitative comments in Institute
market periodicals which Investment-grade corporate bond spreads for Supply Management (ISM) survey data
provide relative value
look to end the year roughly unchanged after have indicated large firms are looking to
recommendations across push higher costs onto consumers, usually
the fixed income spectrum. having violently widened in March/April and
subsequently rebounded. This sharp decline an early indication of inflation risks. Given
Bloomberg named him the
most-accurate forecaster of in interest rates combined with ultimately the last decade, it is important to remain
the Treasuries market in 2015 unchanged spreads helped power most fixed skeptical about our economy’s probability
and previously recognized income markets to strong returns in 2020, of returning to the Fed’s 2% inflation target,
him as a “Bloomberg Best” but rarely have so many forces lined up
for his work in bond market
despite a host of very prominent risks.
on the inflationary side of the fence. The
forecasting.
Table 1: 2020 Returns by Sector net impact of these economic growth and
Prior to joining Janney in inflationary forces is that longer-term (10-to-
2006, Guy served as Interest
Rate Risk Manager for U.S.
30-year) interest rates are likely to rise in
Trust’s bank asset and liability 2021. Specifically, we are looking for 10-year
portfolios, a role in which he Treasury yields to end next year in the 1.25%-
oversaw risk and return on 1.45% range.
an $11 billion balance sheet.
He received his education
from Swarthmore College Chart 3: Banks Appear to Be Holding Excess Credit
and is a CFA Charterholder. Reserves; Releasing These Reserves Should Support
Credit Markets in 2021
(Source: Bloomberg/Barclays Indices)
$70bln
17.50%
$60bln
In the coming year, we anticipate further
15.50%
normalization in economic growth as the 13.50%
Loan Loss Provision at
$50bln
labor market heals from the 2020 downturn, 11.50% US Banks (Right Axis)
$40bln
HY Yield Credit Spreads
and knock-on effects from housing strength 9.50% (Qrtly Avg; Left Axis)
$30bln
support many other areas of growth as well. 7.50%
$20bln
5.50%
When it comes to inflation, the jury is still 3.50% $10bln
out. Both Fed and fiscal policy are broadly
1.50% $0bln
inflationary. Although the violent demand
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
shock this past year dampened inflation in
the short term, many economic changes are, (Source: Janney Investment Strategy Group; FDIC; Bloomberg/Barclays)
similar to policy, broadly inflationary.
© JANNEY MONTGOMERY SCOTT LLC • MEMBER: NYSE, FINRA, SIPC • JANNEY OUTLOOK 2021 • REF: 168315-1220 • PAGE 8 OF 10CREDIT MARKETS Meanwhile, trends for stressed issuers—a handful of
states come easily to mind—have accelerated through
When it comes to credit conditions, economic growth the economic downturn. On the other side of the coin,
should help. However, there is an additional factor: bank municipal buyers have been very active, partially as
reserves. The banking sector added credit reserves into rebalancing dollars come out of equities and go into fixed
the March downturn that, on average, have exceeded income. The net effect is, in our view, that high-grade muni
actual losses. markets will largely track Treasury yields, at least in the
In 2021, it is likely the banking sector will be able to release beginning part of 2021, with muni/Treasury ratios stable.
these reserves, add to capital (especially if regulators Still, given the risk of accelerating deterioration in riskier
prevent them from returning capital to owners), and state and local government credits, we recommend an
increase lending activity. With positive lending forces in up-in-quality (AA- and higher) bias for the coming year.
the banking sector, the credit markets are likely to respond The opposite goes for diversified health care and higher
with tightening spreads, which would allow corporate and education, in which incremental spread for 2- to 7-year
taxable muni credit, especially lower-investment-grade bonds in the A-ratings range is generally worth the risk,
and high yield sectors, to perform well. In that sense depending on the credit.
(and thanks in large part to banking reserves), the post- While the strongest returns for fixed income are likely
coronavirus financial landscape is likely to proceed much behind us—it’s hard to see high single-digit results
as the post-Global Financial Crisis landscape did a decade repeating themselves given the low level of interest
ago. The primary difference is that everything in 2020 is rates—there are still opportunities to generate reasonable
unfolding at two to four times the speed it did in 2009. performance. The key, we believe, lies in taking credit risk
more so than interest rate risk in 2021 and, depending on
MUNICIPAL MARKETS how the credit cycle evolves, perhaps beyond.
Finally, we’ll touch on the municipal markets.
Chart 4: Current 10yr Muni/Treasury Ratio Well Below Median,
but Supported by Strong Demand
(Source: Janney Investment Strategy Group; Bloomberg)
Despite pervasive fears of tax shortfalls and revenue
declines across sector, the fiscal impact of the coronavirus
has proven manageable for the vast majority of issuers. A
first round of fiscal transfers from the CARES Act to state
and local governments and the prospects of a second
round went a long way to filling budget holes.
Sectors most affected (health care, transportation,
education) have, with a few notable exceptions, pulled
through the worst of the downturn with only moderately
impaired credit profiles. Perhaps the biggest boon,
however, is not fiscal transfers, but rather record-low
borrowing costs, which have made it easy for all but the
most stressed issuers to borrow through temporary gaps.
© JANNEY MONTGOMERY SCOTT LLC • MEMBER: NYSE, FINRA, SIPC • JANNEY OUTLOOK 2021 • REF: 168315-1220 • PAGE 9 OF 10Disclosures Definition of Ratings
This is for informative purposes only and in no event should be construed as a Overweight: Janney ISG expects the target asset class or sector to outperform the
recommendation by us or as an offer to sell, or solicitation of an offer to buy, any comparable benchmark (below) in its asset class in terms of total return.
securities. The information given herein is taken from sources that we believe to be
Marketweight: Janney ISG expects the target asset class or sector to perform in line with
reliable, but is not guaranteed by us as to accuracy or completeness. Opinions expressed
the comparable benchmark (below) in its asset class in terms of total return.
are subject to change without notice and do not take into account the particular
investment objectives, financial situation, or needs of individual investors. Employees Underweight: Janney ISG expects the target asset class or sector to underperform the
of Janney Montgomery Scott LLC or its affiliates may, at times, release written or oral comparable benchmark (below) in its asset class in terms of total return.
commentary, technical analysis, or trading strategies that differ from the opinions
expressed here.
Benchmarks
Returns reflect results of various indices based on target allocation weightings.
Weightings are subject to change. Index returns are for illustrative purposes only and Asset Classes: Janney ISG ratings for domestic fixed income asset classes including
do not represent the performance of any investment. Index performance returns do not Treasuries, Agencies, Mortgages, Investment Grade Credit, High Yield Credit, and
reflect any management fees, transaction costs, or expenses. Indexes are unmanaged, Municipals employ the “Barclays U.S. Aggregate Bond Market Index” as a benchmark.
and you cannot invest directly in an index. Treasuries: Janney ISG ratings employ the “Barclays U.S. Treasury Index” as a benchmark.
Performance data quoted represents past performance and is no guarantee of future Agencies: Janney ISG ratings employ the “Barclays U.S. Agency Index” as a benchmark.
results. Current returns may be either higher or lower than those shown.
Mortgages: Janney ISG ratings employ the “Barclays U.S. MBS Index” as a benchmark.
This report is the intellectual property of Janney Montgomery Scott LLC (Janney) and
may not be reproduced, distributed, or published by any person for any purpose without Investment Grade Credit: Janney ISG ratings employ the “Barclays U.S. Credit Index”
Janney’s prior written consent. as a benchmark.
This presentation has been prepared by Janney Investment Strategy Group (ISG) and High Yield Credit: Janney ISG ratings employ the “Barclays U.S. Corporate High Yield
is to be used for informational purposes only. In no event should it be construed as Index” as a benchmark.
a solicitation or offer to purchase or sell a security. The information presented herein Municipals: Janney ISG ratings employ the “Barclays Municipal Bond Index” as a benchmark.
is taken from sources believed to be reliable, but is not guaranteed by Janney as to
accuracy or completeness. Any issue named or rates mentioned are used for illustrative
purposes only and may not represent the specific features or securities available at a Analyst Certification
given time. Preliminary Official Statements, Final Official Statements, or Prospectuses for
any new issues mentioned herein are available upon request. The value of and income We, Mark Luschini and Guy LeBas, the Primarily Responsible Analysts for this report,
from investments may vary because of changes in interest rates, foreign exchange hereby certify that all views expressed in this report accurately reflect our personal
rates, securities prices, and market indices, as well as operational or financial conditions views about any and all of the subject sectors, industries, securities, and issuers. No
of issuers or other factors. Past performance is not necessarily a guide to future part of our compensation was, is, or will be, directly or indirectly, related to the specific
performance. Estimates of future performance are based on assumptions that may not recommendations or views expressed in this research report.
be realized. We have no obligation to tell you when opinions or information contained in
Janney ISG presentations or publications change.
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