Q2 2021 | OUTLOOK - Lawrence V. Adam III, CFA, CIMA, CFP Chief Investment Officer
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Q2 2021 | OUTLOOK
Lawrence V. Adam III, CFA, CIMA®, CFP®
Chief Investment Officer
INSIGHT:
The world has grappled with the COVID-19 pandemic for
more than a year, but the dissemination of multiple, effective
1
vaccines is mitigating the health crisis. In the US, the rate of
inoculation has vastly improved from the start of the year,
Introduction and in light of improving trends, many states have gradually
started to rollback restrictions.
Survey and COVID-19 Update
BOTTOM LINE:
The improvement in the COVID-19 situation throughout
many parts of the world has expedited expectations for the
global economic recovery and a sustainable reopening.
2
SCIENCE HAS MADE A DIFFERENCE IN THE RECOVERY
VACCINE DEVELOPMENTS HAVE GOTTEN FASTER
• Due to groundbreaking progress in research and technology, the time necessary to develop a vaccine over the last century went from decades of
studies and trials to under one year in the case of the Swine Flu and COVID-19.
Deadliest Pandemic In The Post World War II Era* Historical Vaccine Development Timeline
Pandemic Peak Years Global Deaths US Deaths
COVID-19
Asian Flu 1956-1958 ~2 Million 69,800
Swine Flu
Hong Kong Flu 1968-1969 ~1 Million 100,000 Hepatatis B
SARS 2002-2003 774 0 Chickenpox
Avian Flu 2006-2007 130 6 Measles
Swine Flu 2009-2010 575,400 12,469 Influenza
Yellow Fever
Ebola 2014-2015 11,325 1
Polio
Zika 2015-2016 8 1
1900 1920 1940 1960 1980 2000 2020
2019- ~2.82
COVID-19 ~602,000 Studies Trials
Present Million
Source: FactSet, Data as of 5/17/2021 Source: WHO, CDC
*Spanish Flu (1918) est. ~50,000,000 deaths globally and 675,000 in the US.
3
VACCINATIONS ARE THE KEY TO RETURNING TO NORMAL ACTIVITY
VACCINE RACE AGAINST TIME
• Only 75 days after having 25% of its population fully vaccinated, Israel is recording ~10x less daily new cases.
• Despite the decline in daily vaccinations, the US is still on track to achieve 60-70% of its population inoculated by the end of July as long as the
number of newly vaccinated people remains between 1.3 and 1.5 million per day.
Israel’s New Cases After 25% US’ New Cases After 25%
of Population Inoculated of Population Inoculated
70% 10,000 70% 80,000
% of Population Fully Vaccinated
60% 60%
% of Population Fully Vaccinated
8,000
60,000
50% 50%
Daily New Cases
Daily New Cases
40% 6,000 40%
40,000
30% 30%
4,000
20% 20%
April 18: 25% of the US 20,000
2,000 Population Had Been
10% 10%
Fully Vaccinated
0% 0 0% 0
0 25 50 75 0 25 50 75
Days from 25% of Population Fully Vaccinated Days from 25% of Population Fully Vaccinated
Total Vaccines Daily New Cases Total Vaccines Daily New Cases
Source: FactSet, Data as of 5/17/2021 Source: Investment Strategy
4
VACCINATIONS ARE THE KEY TO RETURNING TO NORMAL ACTIVITY
VACCINE DISTRIBUTION ACCELERATES PACE OF REOPENING
• The accelerated pace of vaccine administration and distribution, coupled with the fact that the most vulnerable age demographic has received the
majority of vaccinations (over 60% of those fully vaccinated in the US are 50 years of age or older), has led to an easing of COVID restrictions. By the
end of May, 74% of US states will be fully reopened.
More Vulnerable Population Has a Higher Percentage State Restrictions by the End of May
of Inoculation
80%
70%
60%
50%
40%
30%
20%
10%
0%
VACCINATIONS ARE THE KEY TO RETURNING TO NORMAL ACTIVITY
VACCINE RACE AGAINST TIME
• The US continues to lead the world in the number of vaccinations with ~38% of the population vaccinated compared to the world at ~4%.
• The US recently reached the 25% benchmark and we expect cases to continue to decline as the number of inoculated people continues to grow.
However, daily vaccinations have been on the decline since the end of April, which could hamper and delay the ability to reach herd immunity.
US Vs. World Vaccinations US Daily Vaccinations
80% 4,000,000
70% of the population fully vaccinated
3,500,000
60%
3,000,000
2,500,000
40%
2,000,000
1,500,000
20%
1,000,000
500,000
0%
Jan-21 Oct-21 Jul-22 Apr-23
0
US US Forecast World ex-US World ex-US Forecast Jan Feb Mar Apr May
Source: Investment Strategy Source: FactSet, as of 5/17/2021
6
WHAT A DIFFERENCE A YEAR MAKES
THERE HAVE BEEN SIGNIFICANT ASSET CLASS MOVES AS A RESULT OF COVID
• After declining 34% from peak to trough, it took the S&P 500 126 trading days to recover its COVID-driven losses. Since the bottom (March 23, 2020)
the S&P 500 is up 81% and is also up ~20% from pre-COVID highs.
• After declining to the lowest level on record (0.50%), the 10-year Treasury yield is back above pre-COVID levels. It took the 10-year Treasury yield 14
months to reach pre-COVID levels.
S&P 500 Surges Higher Bonds Rally then Tumble
4,250 Wuhan Lockdown
2.00% Begins
4,000 Pfizer Efficacy 10-Year Yield Hits
Data Released pre-COVID level
Wuhan 1.75%
3,750
Lockdown S&P 500 Reaches
Begins pre-COVID Level
3,500 1.50% Georgia
Georgia Senate $1.9
trillion Senate
3,250 Run-Off Run-Off
stimulus 1.25%
passed $1.9
3,000
1.00% Fed trillion
Announces stimulus
2,750 passed
QE Program
0.75%
2,500 CARES
Fed Act Passed Pfizer Efficacy
2,250 Announces 0.50% Data Released
QE Program CARES Act
Passed
2,000 0.25%
Dec-19 Feb-20 Apr-20 Jun-20 Aug-20 Oct-20 Dec-20 Feb-21 Dec-19 Feb-20 Apr-20 Jun-20 Aug-20 Oct-20 Dec-20 Feb-21
S&P 500 - Price Index 10-Year US Treasury Yield
Source: FactSet, Data as of 3/31/2021 Source: FactSet, Data as of 3/31/2021
7
INSIGHT:
Governments and central banks acted quickly to avoid the
worst case scenario for economic fallout as a result of the
2
outbreak. In response to the shortest, steepest recession in
US history, both the Federal Reserve and Congress
ECONOMY undertook unprecedented action and injected record levels
of stimulus into the economy.
Recovery: A Policymaker Experiment BOTTOM LINE:
With ample fiscal stimulus in support of consumer spending,
an accommodative Federal Reserve, and the ongoing
improvement in vaccine dissemination, the US economy is
poised for better economic activity than previously expected
and could post the best year of economic growth since 1984.
8
THE COVID EXPERIMENT HYPOTHESIS
SINCE THE COVID CRISIS, POLICY AUTHORITIES HAVE MADE A NUMBER OF HISTORIC MOVES
• Since the start of the COVID crisis, Congress has passed ~$5.5 trillion in fiscal stimulus (2.5x what was done in total for the Great Financial Crisis). This
is in conjunction with the significant easing in policy from the Fed, as it has added ~$3.5 trillion to its overall balance sheet.
• This total amount of combined fiscal and monetary stimulus is larger than that of the economies of Germany and Japan combined.
Biggest Fiscal Rescue Plan in History Fed Remains Supportive More Stimulus than GDP of Most Economies
25
6000 $8
20.94
Total Amount of Fiscal Stimulus (in $bn)
5000 $7 20
GDP
4000 $6 14.86
15 Stimulus
3000 $5
10 9
2000 $4
4.91
5 3.78
1000 2.64
$3 2.59 2.55
0 0
1 256 511 766 1021 1276 1531 1786 2041 2296 2551 $2
US China Total US Japan Germany UK India France
2011 2013 2015 2017 2019 2021 Stimulus
Number of Days Since Recession Began
Coronavirus Great Recession Great Depression Fed Balance Sheet (in $trillion) Total Stimulus or GDP (in $tn)
Source: FactSet, Data as of 3/30/2021
9
THE RESULTS OF THE EXPERIMENT SO FAR ARE PROMISING
WE EXPECT ECONOMIC ACTIVITY TO REACH PRE-COVID LEVELS IN 2Q21
• As a result of fiscal and monetary stimulus and improving activity metrics (due to increased vaccinations and falling case counts), we expect US GDP
to be ~5.6% in 2021. This would mark the best year of economic growth since 1984.
• As a result of improving economic activity metrics, we expect activity to reach pre-COVID levels in 2Q21.
Best Year of Annual GDP Growth Since 1984 US Economy to Regain Lost Activity in 2Q
10% 20,500
20,000
5%
19,500 Q2
2Q21
0% 19,000
18,500
-5% US Economy to 18,000
Recover to pre-
17,500
-10% COVID Level
17,000
-15% 2018 2019 2020 2021 2022
1945 1960 1975 1990 2005 2020 United States - Gross Domestic Product
US Annual GDP Forecast GDP Trend
Source: FactSet, Data as of 3/31/2021 Source: FactSet, Data as of 3/31/2021
102 BROAD-BASED ECONOMIC RECOVERY
THE US ECONOMY CONTINUES TO ACCELERATE AT A BLISTERING PACE
• Consensus estimates for both 2021 and 2022 GDP growth continue to move higher. In fact, the consensus
5.7%
Raymond James
estimate for 2021 GDP growth is now 6.4% (up from 3.9% at the start of the year). 2021 GDP
• If this level of growth were to come to fruition, it would mark the best annual GDP growth since 1984. Forecast
GDP Growth Forecasts Moving Higher $2.5 Trillion Excess Disposable Income Broad-Based Economic Recovery
7.0% 21
1 Retail Sales Rise at the Fastest Pace
6.5% 20
(32% YoY) on Record
6.0% 19 Minimum $2.5 trillion in
excess spending capacity Disposable Personal Income Rises
5.5% 18 2
32% YoY to Record High of $22 trillion
5.0%
17
4.5% 3 The Unemployment Rate Falls at the
16 Sharpest 12-Month Rate on Record
4.0%
15
3.5%
4 Housing Prices Rise at the Fastest
3.0%
14 Rate (11.9%) Since 2014
2.5% 13
5 ISM Manufacturing Rises to the
2.0% 12
May-20 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21 May-21
Highest Level Since 1983
11
US 2021 Consensus GDP Growth 2011 2013 2015 2017 2019 2021 6 CEO Confidence Rises to the Highest
US 2022 Consensus GDP Growth US Real Disposable Income (in $tn) Level in 40 Years
Source: FactSet. Data as of 2/18/2021. Forecast With Additional Stimulus
11KEY QUESTIONS: ROARING TWENTIES REDUX?
THE ROARING TWENTIES VERSUS TODAY’S ENVIRONMENT
• While there are similarities as a result of pent-up demand, there are significant psychological, demographic and structural dynamics that suggest the
unfettered elevated growth trajectory of the 1920s will not be duplicated in the upcoming decade.
Psychological Demographics Structural
The live now, spend now An aging population will diminish Fundamental differences in
mentality is not the same labor capacity macroeconomic environment
• Access & Expansion Of Electricity
• Growing Telephone System
The World War I & Spanish Flu
Combined For ~4 Years Of
Median Age: 24
Fertility Rate: ~28 Live Births/1,000 People • Massive Infrastructure Projects
Roaring Economic Restrictions & Average Life Expectancy: 54 • Mass Production Of Cars, Radios,
Washing Machines, etc.
Resulted in ~790K Deaths In % of Population 65 Years+: 5%
Twenties A Population of 107M ‘Low Skill’ Manufacturing Jobs Created • Creation Of Installment Credit
• Oil Development Expansion
• Tax Rates Declining
The New The COVID-19 Pandemic Has Median Age: 38 • Technological Revolution
• Service Based Economy
Roaring Resulted In ~1 Year Of Fertility Rate: ~11 Live Births/1,000 People
Average Life Expectancy: 79 • Fed Zero Interest Rate Policy &
Economic Restrictions & Has
Twenties? Caused ~580K US Deaths In % of Population 65 Years+: 17%
•
Accommodative Policy
Higher Tax Rates Proposed
A Population of 331M Skills ‘Mismatch’ & Training Needed For New
Not Likely Economy • Substitution of Renewable Energy
12KEY QUESTIONS: CONCERNS REGARDING INFLATION?
BASE AND COMMODITY RELATED EFFECTS ARE LIKELY TO LEAD TO A TEMPORARY INCREASE IN INFLATION IN THE NEAR TERM
• As we compare the COVID-related impact on prices from last year to this year, inflation metrics are likely to temporarily surge on a year-over-year
basis above the Fed’s target of 2%.
• Rising commodity prices will also likely lead to a modest upward pressure on pricing, as a number of consumer staples companies have indicated
that they will raise prices on goods as a result.
Issues Leading to Inflationary Concerns Inflation to Tick Higher in the Near Term
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
Feb-16 Nov-16 Aug-17 May-18 Feb-19 Nov-19 Aug-20 May-21
Headline CPI (%YoY) Core CPI (%YoY) Fed Target
Source: FactSet, Data as of 3/30/2021. Source: FactSet, Data as of 3/31/2021
13WHY WE ARE NOT OVERLY CONCERNED ABOUT A SUSTAINABLE INFLATION SURGE
WHILE INFLATION IS LIKELY TO TICK HIGHER IN THE NEAR TERM, WE VIEW THIS AS A TRANSITORY ISSUE
• While base and commodity-related impacts will likely push inflation higher in the near term, we view this as a temporary issue as base/composition
effects in wages, record low velocity of money and technological impacts (and globalization) will likely weigh on overall inflation going forward.
1 Wage Composition/Base Effects 2 Record Low Velocity of Money 3 Technology Impacts on Pricing
9% 2.40
Overall
8% 2.20 Health Care
7% Construction
2.00
Prof. Services
6%
1.80 Manufacturing
5%
Agriculture
1.60
4% Info Tech
1.40
3% Retail Trade
1.20 Education
2%
0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5%
1% 1.00
2007 2009 2011 2013 2015 2017 2019 2021 1959 1971 1983 1995 2007 2019 Annualized Change in PPI (2001-2017)
US Average Hourly Earnings (%YoY) US Velocity of Money PPI Excluding Tech PPI Including Tech
While wages rose to a record high during the pandemic, While money supply growth is at a record high, the velocity of As technology has a greater impact on our economy, it will
as lower wage earners are hired back, it will weigh on money is currently at a record low. continue to lead to downward pressure on prices.
the overall pace of wage growth.
Source: FactSet. Data as of 5/7/2021.
14MAIN STREET VS WALL/FED STREET INFLATION
A DIFFERENCE BETWEEN MAIN STREET AND FED/WALL STREET INFLATION
• It is important to point out that the Fed will adjust policy based off of its inflation metrics, not those that are directly felt by consumers.
• As Fed inflation benchmarks are not impacted by rising asset (e.g., equities, bitcoin), housing or energy prices, it is unlikely that the recent surge in
these prices will impact the Fed’s thinking regarding raising interest rates.
Main Street vs .Wall Street Inflation Components of ‘Traditional’ Inflation
Main St Wall St. Rationale 45% 41.3%
While rising asset classes continue to boost 40%
Asset Equity: +55% YoY
N/A household wealth, they are not factored into the 35%
Prices Bitcoin: +650% YoY
Fed’s inflation indicators.
30%
WTI: +162% YoY While energy prices are up over 50% YoY, these
Energy N/A 25%
Gas: +50% YoY are stripped out of core inflation indicators.
20%
While food prices are up 3-4% YoY, these are
Food Food: +3.5% YoY N/A
stripped out of core inflation indicators.
15%
9.2% 8.9% 7.9%
10% 6.4% 4.8%
Due to lower inventories, housing prices are up 3.5% 2.5%
Housing
Housing Prices: Rent:
12% YoY. However, rents, not home prices, are 5%
+12% YoY +1.7% YoY
the input into the Fed’s inflation indicators. 0%
Rent
Furnishings
Medical Services
Transport
Commodities
Education
Apparel
Transportation
Household
Services
Commodities
Recreation
Tools,
While lumber costs are up 350% YoY, lumber
Building Lumber: Hardware &
(tools, hardware and supplies) make up only
Costs +350% YoY Supplies
0.3% of core CPI.
+3.7% YoY
Jewelry/Watches: Apparel: While luxury goods continue to appreciate,
Apparel
+6.7% YoY -2.5% YoY apparel (~4% of core CPI), has declined 2.5% YoY
Weighting in Core CPI
Source: FactSet, Data as of 5/9/2021.
15KEY QUESTION: MORE FISCAL STIMULUS TO COME?
RECOVERY PACKAGES TO SUPPLEMENT RESCUE PACKAGE; HOWEVER, THEIR IMMEDIATE ECONOMIC IMPACT FAR LESS
Recovery Package: Recovery Package:
Rescue Package
Infrastructure Social
Size of Deal $2.7 Trillion $2.25 Trillion $1-2 Trillion
Distribution Period 84% Over Next 2 Years 8 Years Initial Planning Period
Distribution
2022 2029 Initial Planning Period
Completed By
Funding Mechanism Deficit Funded 100% “Pay-Fors” Initial Planning Period
Corporate tax increase from 21% to 28%, Likely to be at least partially paid for with
and measures to stop offshoring of profits increases in individual tax rates.
(e.g., multinational firms pay at least
21%) should pay for bill in 15 years.
Source: FactSet, Data as of 3/31/2021
16INSIGHT:
Expectations of a supercharged economy and a modest uptick
3
in inflation have led Treasury yields to rise back to pre-
pandemic levels. However, the upside will be limited due to
Fixed Income
ongoing Fed purchases, healthy demand from foreign
investors, and the interest rate sensitivity of the economy.
Catalysts Repelling Yields From Moving Higher BOTTOM LINE:
The return profile of fixed income will remain challenging in a
rising rate environment, therefore we maintain our preference
for quality and keep our bias toward investment grade over
high-yield bonds. Dollar-denominated emerging market bonds
may also benefit from our expectation of a weaker dollar.
17INTEREST RATES RISING FOR THE RIGHT REASONS
WHILE INTEREST RATES HAVE RISEN, WE BELIEVE THAT THEY HAVE RISEN FOR THE ‘RIGHT’ REASONS
• Longer-duration bond yields have tracked the recent upgrades to economic growth forecasts, signaling that Treasury yields are rising in part due to
improving economic growth expectations.
• Yields have also risen on the back of rising inflation expectations, which we view as healthy given the number of years below the Fed’s target of 2%.
Treasury Yields Rising With Rising Growth Forecasts Breakevens Moving Higher Across All Maturity Levels
6.5% 1.9% 3.0%
6.0% 1.7% 2.5%
5.5% 1.5% 2.00% 2.0%
5.0% 1.3%
Year-End 2021 1.5%
10-Year Treasury
Yield Target 1.0%
4.5% 1.1%
0.5%
4.0% 0.9%
0.0%
3.5% 0.7%
Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21
2011 2013 2015 2017 2019 2021
Consensus 2021 GDP Growth Forecasts (LHS) 10-Year Treasury Yield (RHS) 5-Year Breakeven Inflation Rate
Source: FactSet, Data as of 4/8/2021 Source: FactSet, Data as of 3/31/2021
18WHY WE DO NOT EXPECT A SIGNIFICANT INCREASE IN RATES FROM HERE
WHILE WE EXPECT THE 10-YEAR TREASURY YIELD TO RISE TO 2%, THE RISE WILL LIKELY BE LIMITED FROM CURRENT LEVELS
• Given elevated levels of yield differentials between US and foreign sovereign bond yields, we expect foreign demand for Treasurys to remain
elevated. This increased demand should support Treasurys.
• Additionally, given elevated levels of debt, the interest rate sensitivity of the economy has increased. If interest rates were to rise too much, it would
act as a self-correcting mechanism as elevated interest rate expense would likely hamper economic growth.
Foreign Demand Likely to Pick Up on
3.00
2.50
Rising Yield Differentials $46.1T Interest Rate Sensitivity Due to Elevated
Debt Levels
Combined Debt for
2.00
Government,
1.50
Households, &
1.00
Corporations
$345 Billion
0.50
0.00
-0.50 ~$450B
-1.00 Increase In Interest $1.62 Trillion $248 Billion
-1.50 Expense Annually If
2006 2009 2012 2015 2018 2021 2020 Interest Expense
Rates Rise 1%
*Corporate Covers Interest Expense for
US/German 10-Year Yield Differential
S&P 500 Companies
Source: FactSet, Data as of 5/16/2021 Source: FactSet, CBO, Data as of 4/8/2021
19THE ‘ELEMENT’ OF BONDS WITHIN YOUR PORTFOLIO
DESPITE MUTED RETURN FORECASTS, FIXED INCOME REMAINS A KEY ELEMENT WITHIN YOUR PORTFOLIO
• While fixed income has experienced negative returns in rising rate environments, it remains a key part in asset allocation as it provides solid
diversification to equity holdings.
• Additionally, it is one of the few asset classes where investors can pick up yield within their portfolio.
More Muted Downside Risk Fixed Income Appropriate to Pick Up Yield
0% 6%
4.98%
5%
-10% 4.05%
4%
-20%
-.37 3%
1.94%
2.33% 2.41%
-30% 2% 1.51%
1.74%
10-yr Treasury
1%
-40%
Correlation to 0.00%
0%
-50% S&P 500
Commodities
EM Bonds
IG
10-YR Treasury
30-YR Treasury
Dividend Yield
Tax-Equivalent 10Y
High Yield
AA Muni Yield
S&P 500
-60%
1995 1999 2003 2007 2011 2015 2019
S&P 500 Barclays Agg
Yield on Asset
Source: FactSet, Data as of 3/31/2021. Drawdown is defined as the % decline from the most
recent record high. Source: FactSet, Data as of 3/31/2021
20INSIGHT:
Multiple expansion due to optimism surrounding the economic
4
recovery has led most major indices to record high levels. Moving
forward, a substantially better earnings environment should lead the
equity market higher over the next 12 months. Near-term volatility
Equities will be driven by inflationary fears, but history suggests inflation
within our base case range will not halt the market’s momentum.
Earnings Under The Microscope BOTTOM LINE:
Fundamental analysis remains critical, and our favored sectors –
Info Tech, Communication Services, Financials, Industrials, and
Consumer Discretionary remain attractive due to visible earnings
growth and attractive valuations on a relative basis. Beyond the
short term recovery run, these sectors have long-term secular
growth trends intact.
21MOMENTUM IN EQUITY PRICE GROWTH LIKELY TO SLOW
WE EXPECT THE BULL MARKET TO CONTINUE, ALBEIT AT A MORE MODERATE PACE
• The current bull market got off to the strongest start to a bull market (S&P 500: +75%) in the post-WWII era.
• The second year of a bull market has been positive 100% of the time in history, although returns have historically been more muted on average
relative to the first year (+13% vs +40%). Additionally, drawdowns have been greater in the second year.
Strongest Bull Market in History Dial Back Return Expectations for Year Two More Muted Gains Going Forward
90%
45%
The second year of a bull market is up 13% 100 Day Milestone (includes 74
80% +75% +40% 8%
40% on average and has been positive 100% of trading days)
70% the time. This is versus +40% in the first year
35% 7%
60% 30% 6%
50% 25% 5%
40% 20%
Year 1 4%
15% +13%
30% 3%
10%
20% 2%
5% Year 2
10% 1%
0%
0% 0%
-5%
1 26 51 76 101 126 151 176 201 226 251
110
121
132
143
154
165
176
187
198
209
220
231
242
0
11
22
33
44
55
66
77
88
99
Number of Days -1%
Average of Indexed Bull Market Performance by Year 0 20 40 60 80 100 120 140 160 180 200 220 240
1949-1956 1957-1961 1962-1966
1966-1968 1970-1973 1974-1980 Year 1 Year 2 Average S&P 500 Performance Following Inauguration Day
1982-1987 1987-2000 2002-2007
Source: FactSet. Data as of 3/31/2021
22THE ABC’S OF ‘THINKING’ OPTIMISTIC ON EQUITIES LONGER TERM
WHILE MARKETS REMAIN NEAR RECORD HIGHS, THERE ARE SIX REASONS WE ARE OPTIMISTIC LONG TERM
Accelerating Economic Growth; Massive Stimulus Additive
Bull markets rarely end in strong economic conditions. 95%
of respondents
Balance Sheet Expansion By the Fed believe the S&P 500
As the saying goes, “Don’t fight the Fed.” The Fed will remain accommodative for the foreseeable future. will be higher
COVID Containment by the end of 2021
Source: RJ Investment Strategy
At the current vaccination pace, the economy could be fully open by the end of May. Sentiment Survey
Dividends and Buybacks Increasing Again
Dividends expected to grow 4% and buybacks likely to increase significantly.
4,180
Earnings growth of 38% Year-End 2021
Best year of earnings growth since 2010.
S&P 500 Target
False Narratives: Myth vs Reality
Contrary to ‘headlines,’ rising interest rates, taxes, healthy inflation and an eventual Fed hike are not necessarily market negatives.
23EARNINGS THE CHEMIST TO CONCOCT MARKETS HIGHER
EARNINGS WILL NEED TO BE THE DRIVER TO PROPEL MARKETS HIGHER FROM CURRENT LEVELS
• We expect S&P 500 earnings to move to $190 and $220 in 2021 and 2022, above consensus estimates of $174 and $200.
• $190 in earnings represents ~38% of EPS growth in 2021, marking the strongest EPS growth since 2010.
Upside to Current Consensus Forecasts 2021 EPS Growth to Hit 11 Year High
230 50%
$220 40%
220 40%
38%
+38%
210 30%
$200 23% 21%
200
$190 20% 14% 14% 15% 16%
190 13% 11%
2021 S&P 500 10% 6% 5% 6%
180 $174 1% 0% 1% 1%
170
EPS Growth 0%
-1%
160 Forecast -10%
150 -20% -14% -17%
-16% -14%
2021 2022 -30%
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
S&P 500 Annual EPS Forecasts
RJ Forecast Consensus S&P 500 Annual EPS Growth
Source: FactSet, Data as of 3/31/2021 Source: FactSet, Data as of 3/31/2021
24EQUITY MOMENTUM TYPICALLY CONTINUES THROUGH KEY RISKS
EQUITY MARKETS HAVE TYPICALLY MOVED HIGHER FROM THE KEY ‘RISKS’ CURRENTLY FACING THE MARKET
• Three of the key risks facing equity markets (rising interest rates, increasing inflation and the timing of the first Fed rate hike) have not stopped
equity market performance in the past. The strength of the economy and earnings growth has more than offset these risks.
Equities Rally Amongst Rising Rates Equities Rally Amidst Higher Inflation Equities Rally into First Rate Hike
Do not fear the
Yield Change Annualized S&P 25% 40%
Fed just yet.
100%
Bottom Peak 19%
(in bps) 500 Performance 20% 34%
16% 35%
10/15/1993 11/7/1994 286 -1.3% 13% 90%
15% 12%
1/19/1996 7/8/1996 151 14.7% 30%
10% 7% 7%
12/3/1996 4/14/1997 92 -1.7% 80%
5% 25%
10/5/1998 1/21/2000 263 33.8%
0% 20% 70%
11/7/2001 4/1/2002 122 7.1%
6/13/2003 6/28/2006 212 7.9% -5%
15%
A ‘healthy’ uptick in inflation has 11% 60%
1/1/2009 4/5/2010 193 24.3% -10% historically led to above-average 10%
equity performance. 10%
10/8/2010 2/10/2011 133 44.6% -15%
5% 50%
7/25/2012 12/31/2013 158 25.2% -20% 5%
1%
1/30/2015 6/26/2015 83 13.8%
-25% 0% 40%
7/8/2016 11/8/2018 187 12.5% -25%
-30% 2 Years 1 Year 9 Months 6 Months 3 Months
8/4/2020 3/31/2021 121 33.4%
5% S&P 500 Performance Leading into First Fed Rate Hike (LHS)
Average 171 16.5% Average S&P 500 Performance in Inflationary Buckets % of Time Positive (RHS)
Source: FactSet. Data as of 3/31/2021. Source: FactSet. Data ranges from 1970 to current. Source: FactSet. Data ranges from 1973 to current.
25EQUITY MOMENTUM TYPICALLY CONTINUES THROUGH KEY RISKS
EQUITIES HAVE HISTORICALLY RALLIED AMIDST RISING RATES ON BOTH INDIVIDUAL AND CORPORATE TAXES
• In addition to the aforementioned risks, the threat of corporate and individual tax hikes may also weigh on the market.
• The equity market has historically rallied despite corporate and individual tax hikes. The key is the strength of the economy to absorb higher tax
rates.
Equities Rally Amidst Rising Corporate Tax Hikes Equities Rally Amidst Income Tax Hikes
35% 2017 Tax Cut 3,000
15.0% S&P Return:
Six Months Before Six Months After 33% 1986 1993 Tax Hike
Tax Cut S&P Return: -6.2% 2,500
31% S&P +7.1%
2012 Tax Hike
10.0% S&P Return:
29% Return:
2003 Tax Cut +29.6% 2,000
+2.0%
27% S&P Return:
5.0%
25% +26.3% 1,500
23%
0.0%
21% 1,000
19% 500
-5.0%
17%
15% 0
-10.0%
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
-150 -120 -90 -60 -30 0 30 60 90 120 150
Average S&P 500 Performance Surrounding Tax Change Average Effective Income Tax Rate (Top 1%, LHS)
Tax Hike (1950, 1951, 1951, 1993) Tax Cut (1945, 1964, 1978, 1986, 2017)
S&P 500 - Price (RHS)
Source: FactSet, Data as of 3/31/2021 Source: FactSet, Data as of 3/31/2021
26FAVOR CYCLICAL OVER DEFENSIVE SECTORS
WE FAVOR CYCLICAL OVER DEFENSIVE SECTORS COMING OUT OF THE RECESSION
• Due to stronger earnings growth and improving economic activity, we favor cyclical over defensive sectors.
• We are currently overweight Info Tech, Industrials, Communication Services, Financials and Consumer Discretionary.
Tech Experiences Strong Price Growth and EPS Revision Favor Cyclicals over Defensive Sectors
45%
Overweight Equal Weight Underweight
40%
35%
Information Technology Health Care Consumer Staples
30%
25%
Industrials Materials Utilities
20%
15%
Communication Services Energy Real Estate
10%
5%
Financials
Cyclical Sector 0%
Cyclicals (ex-energy) S&P 500 Defensives
Consumer Discretionary Defensive Sector
2021 EPS Growth (%YoY)
Source: FactSet, Data as 3/31/2021 Source: FactSet, Data as of 3/31/2021
27RISKS ELEVATED IN CERTAIN REOPENING SECTORS
WHILE REOPENING INDUSTRIES HAVE UNDERPERFORMED, THEY REMAIN EXPENSIVE
• While Tech has outperformed the typical reopening areas (airlines, restaurants, hotels, resorts and cruises) since the start of 2020, this is not without
fundamental basis.
• In fact, while Tech’s 2022 EPS revision has been revised ~20% over that time period, the reopening areas’ 2022 EPS have been revised ~40% lower
and have not improved over recent months.
Tech Experiences Strong Price Growth and EPS Revision Reopening Sectors Experience Weaker EPS Revisions
160% 140%
130%
140% 120%
110%
120%
100%
90%
100%
80%
70%
80%
60%
60% 50%
40%
Dec-19 Feb-20 Apr-20 Jun-20 Aug-20 Oct-20 Dec-20 Feb-21
40%
Dec-19 Feb-20 Apr-20 Jun-20 Aug-20 Oct-20 Dec-20 Feb-21 Airlines, Restaurants, Hotels Resorts and Cruises 2022 EPS Revision
Tech 2022 EPS Revision Tech Price Performance Airlines, Restaurants, Hotels Resorts and Cruises Price Performance
Source: FactSet, Data as of 3/31/2021 Source: FactSet, Data as of 3/31/2021
28TAKEAWAYS FROM EARNINGS SEASON
KEY THEMES IN COMPANY DIALOGUES
• Digitization, e-commerce, and ESG were key positive topics discussed by companies on conference calls
Digitization E-Commerce ESG
“Over a year into the pandemic, digital adoption “We are hyper-focused on better understanding the “As of this month, 110 of our suppliers have joined us
curves aren’t slowing down. In fact, they’re consumer journey and building greater digital capabilities.” in our renewable energy commitment, and we will
accelerating and it’s just the beginning. Digital - Under Armour bring online nearly 8 gigawatts of new clean energy.”
technology will be the foundation for resilience - Apple
“We're taking even greater advantage of our vast digital
and growth over the next decade.” “We are a net zero operations company today, and
opportunity as we create the future of retail…. we set a
- Microsoft bold vision for digital across owned and operated and we’ve also reduced our carbon emissions by 40% in the
partnered being 50% of our business in the long term. last year. With our Sustainability Cloud, companies
“We are seeing in part an acceleration in the shift to across the globe are tracking and reducing their carbon
digital, but it’s too early to forecast the extent to - Nike
emissions and keeping track of their critical ESGs.”
which these changes in consumer behavior and “In North America, revenue growth of 39% largely
reflects the continuation of demand trends that we have - Salesforce
advertising spend will endure.”
- Alphabet seen since the early months of the pandemic.” “We will flip the switch on MGM Resorts' Mega Solar Array.
- Amazon This 100-megawatt solar array at full production will
“Over the past 12 months, Prime Video streaming hours provide up to 90% of total daytime electricity needs for all
“E-commerce sales are up at about 50% FY-to-date with
were up over 70% year over year.” of our Las Vegas Strip properties, representing over 65
no noticeable change in shopping trends in the quarter.”
- Amazon million square feet of buildings.”
- Procter and Gamble
- MGM
“We've invested heavily in our digital capabilities, and we're “Our growth rate in 2020 was 5x our 2019 growth “United Airlines is also committed to being the
continuing to do that. We've got over 1 million connected rate. And in 2020, we more than doubled digital sales acknowledged industry leader in diversity, equity and
assets, and we are working to leverage those connected to reach and exceed the $10 billion mark, growing e- inclusion. We outlined our plan to train 5000 pilots at our
assets to find ways to add value to our customers.” commerce share by 50% and doubling the number of Aviate Academy by the end of the decade, with a goal that
- Caterpillar digital households within our network.” half of the students will be women and people of color.”
- Kroger - United Airlines
29TAKEAWAYS FROM EARNINGS SEASON
KEY THEMES IN COMPANY DIALOGUES
• Pricing pressures, and continued COVID-related impacts on ‘reopening’ sectors were headwinds on calls.
Pricing Pressures Reopening Story
“The commodity cost challenges we face this year will obviously be a “Business and long haul international demand is still off by 80 plus
larger impact next fiscal year. We will offset a portion of this impact with percent and we expect to return to positive net income once business
price increases.” and long haul international recover to down 35%. Were confident about
- Procter and Gamble ultimately exceeding 2019 adjusted EBITDA margins in 2023.”
- United Airlines
“Our 1Q results and outlook have been impacted by supply chain disruption,
faster than expected consumer tissue destocking and a sharp rise in input “Our quarter GGR (Gross Gaming Revenue) recovered approximately 40%
costs. We're moving rapidly, especially with selling price increases, to offset of pre-pandemic fourth quarter 2019 levels compared to the market's
commodity headwinds. “ overall recovery of 33%.”
- Kimberly Clark - MGM
“Inflationary pressures—particularly surrounding some of our key “In January, our total revenue was 34% of what it was in 2019, and by
commodities—it looks like it is going to be more of a headwind in March, it was 46% of 2019… this is in spite of business and long-haul
[2021 and 2022].” international demand remaining weak with net bookings of roughly 20% of
- Coca Cola their 2019 levels.”
- American Airlines
“We feel like if there is going to be significant increased labor
inflation because of market-driven [forces] or because of a federal “By the time we end the year, I think we could be back somewhere around
minimum wage, we think everybody in the restaurant industry is 70% or something -ish of '19 levels on a run rate basis, which isn't all the
going to have to pass those costs along to the customer.” way home. But it's a heck of a lot better than where we were.”
- Chipotle - Hilton
30INSIGHT:
Given its superior vaccination progress, state of reopening,
5
and aggressive policy stimulus, the US economy is
experiencing the highest upward revisions to GDP forecasts
International amongst the world’s ten largest economies.
BOTTOM LINE:
Testing Our Theory of Relativity While we maintain our bias toward domestic equities, Asian
emerging markets are the least expensive region on a relative
basis, and a substantial economic rebound in both China and
India should drive those markets as well.
31RELATIVITY FAVORS US OVER INTERNATIONAL EQUITIES
WE FAVOR US OVER INTERNATIONAL EQUITIES DUE TO IMPROVING COVID TRENDS
• Improving COVID trends (falling US cases) and increased vaccinations have supported stronger mobility trends in the US relative to international
economies.
EU vs US Daily New Cases US Vaccinations Outpacing Rest of World Mobility Measures Much Stronger in US
350,000
20% Restaurant Reservations Relative to pre-COVID Levels
300,000
250,000
15% December 2020 March 2021
% of Population
200,000
10% United States -56.0% -28.8%
150,000
Global -57.3% -35.6%
5%
100,000
Germany -94.1% -98.8%
50,000 0% US
UK
France
Italy
Germany
Canada
Belgium
Japan
0 Ireland -75.2% -99.7%
Feb Apr Jun Aug Oct Dec Feb Apr
Europe US UK -82.6% -99.7%
Fully Vaccinated
Source: FactSet. Data as of 3/31/2021
32RELATIVITY FAVORS US OVER INTERNATIONAL EQUITIES
THE US HAS EXPERIENCED STRONGER ECONOMIC AND EARNINGS REVISIONS
• Due to improving activity metrics, the US has experienced the strongest economic and earnings revisions since the start of 2021.
• This should support US equities over international equities over the next 12 months.
US Experienced Stronger GDP Revisions Leading to Stronger 2021 EPS Revisions
2.3% 2.0% 6%
1.8% 5.1%
5%
1.3%
0.8% 4%
3.2%
0.3% 3.0%
3% 2.7%
-0.3%
2.3%
2%
-0.8%
-1.3% 1%
S&P 500 Emerging MSCI Japan EAFE MSCI Europe
Markets
2021 GDP Revision Relative to the Start of the Year 2021 EPS Revision Relative to Start of Year
Source: FactSet, Data as of 4/9/2021 Source: FactSet, Data as of 3/31/2021
33INSIGHT:
Global oil demand has gradually improved due to the
6
reopenings across the globe, with oil prices finally returning
to pre-pandemic levels this year. However, now that oil
Commodities prices are higher, it incentivizes producers in the US, OPEC,
and Russia to increase production from the levels that have
been on hold.
Supply & Demand On The Same Wavelength
BOTTOM LINE:
The demand driven price momentum is likely to be tempered
by rising supply, therefore oil prices should only modestly
increase from current levels.
34STRONGER DEMAND TO PUSH CRUDE OIL HIGHER
WE EXPECT CRUDE OIL TO MOVE MODESTLY HIGHER ON THE BACK OF STRONGER DEMAND
• Crude oil demand is expected to experience the strongest growth (6.1%) since 1973.
• Historically, annual crude oil demand growth of 3% or more has been bullish for crude oil prices.
Strong Global Demand Growth Strong Demand a Tailwind for Prices
6.3%
10%
15% 100%
8%
Median Annual Change in Oil Prices
11% 90%
6.3% 10%
6% 10% 80%
Expected Global Oil 70%
4%
Demand Growth in 5% 3% 60%
2%
2021, Best since 1973 50%
0% 0% 40%
1%
-2%
30%
-5% 20%
$70
-4%
10%
-6% -10% -8% 0%
3%
-8%
Annual Global Demand Growth
-10% -8.6% Year-End 2021 Oil
1971 1978 1985 1992 1999 2006 2013 2020 Median Annual Change in Crude Oil Prices Based on Annual Change in Crude Oil Demand
Price Target
Annual Change in Global Oil Demand % of Time Positive
Source: FactSet, Data as of 3/31/2021 Source: FactSet, Data as of 3/31/2021
35BUT OIL SUPPLY WILL EVENTUALLY BE ON SAME WAVELENGTH
DESPITE THE SHARP RALLY IN CRUDE OIL PRICES, SUPPLY HAS BEEN CONTAINED THUS FAR, BUT EXPECTED TO GROW
• While crude oil rigs have historically trailed prices, the number of rigs has been contained thus far. This suggests that US producers have exhibited
cost discipline thus far. In addition, OPEC production levels remain near the lowest levels since the early 2000s.
• As crude oil prices typically peak in July, seasonality should be supportive of prices in the near term.
US Producers Exhibiting Capital Discipline OPEC Keeping Production Contained So Far Seasonality a Near-Term Positive
120 1,800 37 14%
110 12%
1,600 35 Pent-Up Travel
100 10% Plans Could
1,400 33 Support
90 8% Prices
1,200 in 2H
80 31
Crude Oil Price
6%
Oil Rig Count
70 1,000
29 4%
60 800
27 2%
50
600 0%
40 25
400 -2%
30
23
200 -4%
20
21 -6%
10 0
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
2012 2013 2014 2015 2016 2017 2018 2019 2020 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Crude Oil - Price (Lead 12 Weeks, LHS) US Oil Rig Count (RHS) OPEC Crude Oil Production (mmbpd) 15-Year Crude Oil Seasonality
Source: FactSet. Data as of 3/31/2021
36STRONGER DOLLAR RUNNING INTO HEADWINDS
AGGRESSIVE FISCAL AND MONETARY POLICY EASING WILL LIKELY LEAD TO A WEAKER DOLLAR
• Significantly stronger money supply growth in the US vs. other regions such as Europe, should lead to dollar weakening going forward.
• Additionally, widening fiscal budget deficits should lead to dollar weakness relative to current levels.
Aggressive Money Supply Growth in US a Widening Fiscal Deficit a Hurdle for the USD
Headwind for the Dollar Weakening
Dollar
4.0 130
12.00 1.60 2.0 120
10.00 0.0
110
1.50
-2.0
1.25
8.00 100
1.40 -4.0
6.00 90
-6.0
4.00 1.30 80
Year-End 2021 -8.0
2.00 EUR/USD Target 70
1.20 -10.0
0.00 60
-12.0
1.10 50
-2.00 -14.0
-16.0 40
-4.00 1.00
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Strengthening
Dollar
Spread in YoY Money Supply Growth Between US and Eurozone EUR/USD US Budget Deficit as a % of GDP US Dollar Index (RHS)
US Budget Deficit as a % of GDP (2021 Est.)
Source: FactSet. All charts as of 3/31/2021 Source: FactSet, Data as of 3/31/2021
37INSIGHT:
Market volatility is likely to be more palatable in the year
7
ahead in comparison to last year, but pullbacks remain a
healthy occurrence in the equity market. Inflation fears,
Asset Allocation
investor exuberance, partisan politics, geopolitical tensions,
and vaccine-evasive variant strains are likely catalysts for
near-term volatility in the months ahead.
Chemistry As A Foundation BOTTOM LINE:
Adherence to asset allocation parameters, fundamental
analysis, and selectivity at the sector, industry, and
individual stock level are critical as we begin the second
year of this bull market.
38ASSET ALLOCATION: PERIODIC TABLE OF INVESTING
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Q121
Bp Em Fi Em Co
Blended 19.2% 7.8% 18.7% 6.3%
Portfolio
Co Lc Em Ca Lc Lc Lc
Lc 16.7% 2.1% 37.8% 1.8% 31.5% 18.4% 4.5%
US Equities
Lc Bp Em Lc Lc Lc Lc De Fi De Bp De
De 15.1% 1.0% 18.6% 32.4% 13.7% 1.4% 12.0% 24.8% 0.0% 23.2% 12.5% 3.2%
Developed Bp Ca De De Bp Fi Em Lc Lc Bp De Bp
Markets
11.5% 0.1% 17.0% 21.6% 7.3% 0.5% 11.6% 21.8% -4.4% 20.3% 8.1% 0.9%
Em De De Lc Bp Fi Ca Co Bp Bp Em Fi Em
Emerging
9.4% -11.8% 16.0% 14.1% 6.0% 0.0% 11.4% 16.4% -4.5% 18.9% 7.5% 0.1%
Markets
Fi Fi Co Bp Ca Ca Bp Bp Fi Co Fi Ca Ca
6.5% -13.4% 11.7% 0.0% 0.0% -0.9% 7.3% 3.5% -13.0% 8.7% 0.5% 0.5%
Fixed Income
Ca Em Fi Fi Em De De Ca De Co Co Fi
Ca 0.1% -18.2% 4.2% -2.0% -1.8% -2.6% 3.3% 0.8% -13.6% 5.4% -3.5% -3.1%
Cash
Ca Em De Em Fi Co Em Ca
Co 0.1% -2.3% -3.9% -14.6% 2.6% 0.7% -14.2% 2.2%
Commodities
Co Co Co Co Ca
-1.1% -9.6% -17.0% -24.7% 0.3%
Blended Portfolio: S&P500 (40%), Barclays Agg (40%), EAFE (10%), Russell 2000 (10%)
39ASSET ALLOCATION: PERIODIC TABLE OF INVESTING
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Q121
Bp Em Fi Em Co
Blended 19.2% 7.8% 18.7% 6.3%
Portfolio
Co Lc Em Ca Lc Lc Lc
Lc 16.7% 2.1% 37.8% 1.8% 31.5% 18.4% 4.5%
US Equities
Lc Bp Em Lc Lc Lc Lc De Fi De Bp De
De 15.1% 1.0% 18.6% 32.4% 13.7% 1.4% 12.0% 24.8% 0.0% 23.2% 12.5% 3.2%
Developed Bp Ca De De Bp Fi Em Lc Lc Bp De Bp
Markets
11.5% 0.1% 17.0% 21.6% 7.3% 0.5% 11.6% 21.8% -4.4% 20.3% 8.1% 0.9%
Em De De Lc Bp Fi Ca Co Bp Bp Em Fi Em
Emerging
9.4% -11.8% 16.0% 14.1% 6.0% 0.0% 11.4% 16.4% -4.5% 18.9% 7.5% 0.1%
Markets
Fi Fi Co Bp Ca Ca Bp Bp Fi Co Fi Ca Ca
6.5% -13.4% 11.7% 0.0% 0.0% -0.9% 7.3% 3.5% -13.0% 8.7% 0.5% 0.5%
Fixed Income
Ca Em Fi Fi Em De De Ca De Co Co Fi
Ca 0.1% -18.2% 4.2% -2.0% -1.8% -2.6% 3.3% 0.8% -13.6% 5.4% -3.5% -3.1%
Cash
Ca Em De Em Fi Co Em Ca
Co 0.1% -2.3% -3.9% -14.6% 2.6% 0.7% -14.2% 2.2%
Commodities
Co Co Co Co Ca
-1.1% -9.6% -17.0% -24.7% 0.3%
Blended Portfolio: S&P500 (40%), Barclays Agg (40%), EAFE (10%), Russell 2000 (10%)
40ASSET ALLOCATION: COMPREHENSIVE PLANNING & MONITORING
Selectivity & Endurance & Appropriate Maintain Allocation
Time Horizon
Diversification Commitment Risk Profile Parameters
41ASSET ALLOCATION: ONE PART SCIENCE, ONE PART ART
“The greatest scientists are always artists as well.”
– Albert Einstein
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44INVESTMENT STRATEGY GROUP
Lawrence V. Adam III, CFA, CIMA®, CFP® Liz Colgan Anne B. Platt
Chief Investment Officer Investment Strategy Analyst VP, Investment Strategy
T. 410.525.6217 T. 410.525.6232 T. 727.567.2190
larry.adam@raymondjames.com liz.colgan@raymondjames.com anne.platt@raymondjames.com
Matt Barry, CFA Giampiero Fuentes Joey Madere, CFA
Investment Strategy Analyst Investment Strategy Analyst Senior Portfolio Analyst
T. 410. 525. 6228 T. 727.567.5776 T.901.529.5331
matt.barry@raymondjames.com giampiero.fuentes@raymondjames.com joey.madere@raymondjames.com
Kailey Bodine J. Michael Gibbs Richard Sewell, CFA
Investment Strategy Analyst MD, Equity Portfolio & Technical Strategy Senior Portfolio Analyst
T. 727.567.8494 michael.gibbs@raymondjames.com richard.sewell@raymondjames.com
kailey.bodine@raymondjames.com T. 901.579.4346 T.901.524.4194
Scott Brown
Senior Vice President, Chief Economist
T.727.567.2603
scott.j.brown@raymondjames.com
45DISCLOSURES The views expressed in this commentary are the current opinion of the Chief Investment Office, but not necessarily those of Raymond James & Associates, and are subject to change. Information contained in this report was received from sources believed to be reliable, but accuracy is not guaranteed. Past performance is not indicative of future results. No investment strategy can guarantee success. There is no assurance any of the trends mentioned will continue or that any of the forecasts mentioned will occur. Economic and market conditions are subject to change. Investing involves risks including the possible loss of capital. Material is provided for informational purposes only and does not constitute a recommendation. Asset allocation do not ensure a profit or protect against a loss. Diversification and asset allocation do not ensure a profit or protect against a loss. Dollar-cost averaging cannot guarantee a profit or protect against a loss, and you should consider your financial ability to continue purchases through periods of low price levels. INTERNATIONAL INVESTING | International investing involves additional risks such as currency fluctuations, differing financial accounting standards, and possible political and economic instability. These risks are greater in emerging markets. Investing in emerging markets can be riskier than investing in well-established foreign markets. SECTORS | Sector investments are companies engaged in business related to a specific economic sector and are presented herein for illustrative purposes only and should not be considered as the sole basis for an investment decision. Sectors are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification. OIL | Investing in oil involves special risks, including the potential adverse effects of state and federal regulation and may not be suitable for all investors. CURRENCIES | Currencies investing are generally considered speculative because of the significant potential for investment loss. Their markets are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. GOLD | Gold is subject to the special risks associated with investing in precious metals, including but not limited to: price may be subject to wide fluctuation; the market is relatively limited; the sources are concentrated in countries that have the potential for instability; and the market is unregulated. FIXED INCOME | Fixed-income securities (or “bonds”) are exposed to various risks including but not limited to credit (risk of default of principal and interest payments), market and liquidity, interest rate, reinvestment, legislative (changes to the tax code), and call risks. There is an inverse relationship between interest rate movements and fixed income prices. Generally, when interest rates rise, fixed income prices fall and when interest rates fall, fixed income prices generally rise. US TREASURIES | US Treasury securities are guaranteed by the US government and, if held to maturity, generally offer a fixed rate of return and guaranteed principal value. DESIGNATIONS Certified Financial Planner Board of Standards Inc. owns the certification marks CFP® and CERTIFIED FINANCIAL PLANNER™ in the U.S. Investments & Wealth InstituteTM (The Institute) is the owner of the certification marks “CIMA” and “Certified Investment Management Analyst.” Use of CIMA and/or Certified Investment Management Analyst signifies that the user has successfully completed The Institute's initial and ongoing credentialing requirements for investment management professionals. FIXED INCOME DEFINITION AGGREGATE BOND | Bloomberg Barclays US Agg Bond Total Return Index: The index is a measure of the investment grade, fixed-rate, taxable bond market of roughly 6,000 SEC-registered securities with intermediate maturities averaging approximately 10 years. The index includes bonds from the Treasury, Government-Related, Corporate, MBS, ABS, and CMBS sectors. HIGH YIELD | Bloomberg Barclays US Corporate High Yield Total Return Index: The index measures the USD-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody’s, Fitch and S&P is Ba1/BB+/BB+ or below. CREDIT | Bloomberg Barclays US Credit Total Return Index: The index measures the investment grade, US dollar-denominated, fixed-rate, taxable corporate and government related bond markets. It is composed of the US Corporate Index and a non-corporate component that includes foreign agencies, sovereigns, supranationals and local authorities. US DOLLAR | The U.S. Dollar Index is an index (or measure) of the value of the United States dollar relative to a basket of foreign currencies, often referred to as a basket of U.S. trade partners' currencies. The Index goes up when the U.S. dollar gains "strength" (value) when compared to other currencies. 200 DAY MOVING AVERAGE | The 200-day moving average is a popular technical indicator which investors use to analyze price trends. It is simply a security's average closing price over the last 200 days
US INDEXES AND EQUITY SECTORS DEFINITION S&P 500 | The S&P 500 Total Return Index: The index is widely regarded as the best single gauge of large-cap U.S. equities. There is over USD 7.8 trillion benchmarked to the index, with index assets comprising approximately USD 2.2 trillion of this total. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization. RUSSELL 2000 | Russell 2000 Total Return Index: This index covers 2000 of the smallest companies in the Russell 3000 Index, which ranks the 3000 largest US companies by market capitalization. The Russell 2000 represents approximately 10% of the Russell 3000 total market capitalization. This index includes the effects of reinvested dividends. INTERNATIONAL EQUITY DEFINITION EMERGING MARKETS EASTERN EUROPE | MSCI EM Eastern Europe Net Return Index: The index captures large- and mid-cap representation across four Emerging Markets (EM) countries in Eastern Europe. With 50 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country. EMERGING MARKETS | MSCI Emerging Markets Net Return Index: This index consists of 23 countries representing 10% of world market capitalization. The index is available for a number of regions, market segments/sizes and covers approximately 85% of the free float-adjusted market capitalization in each of the 23 countries. MSCI EAFE | The MSCI EAFE (Europe, Australasia, and Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the United States & Canada. The EAFE consists of the country indices of 22 developed nations. GERMAN BUND | A bund is a debt security issued by Germany's federal government, and it is the German equivalent of a U.S. Treasury bond. SMALL CAP | Investing in small-cap stocks generally involves greater risks, and therefore, may not be appropriate for every investor. The prices of small company stocks may be subject to more volatility than those of large company stocks. LARGE-CAP STOCK | also known as big caps are shares that trade for corporations with a market capitalization of $10 billion or more. Large-cap stocks tend to be less volatile during rough markets as investors fly to quality and stability and become more risk-averse MSCI AC WORLD EX-US | The MSCI AC ex USA Index captures large and mid cap representation across 22 of 23 Developed Markets (DM) countries (excluding the US) and 26 Emerging Markets (EM) countries*. With 2,215 constituents, the index covers approximately 85% of the global equity opportunity set outside the US. LATAM | MSCI EM Latin America Net Return Index: The index captures large- and mid-cap representation across five Emerging Markets (EM) countries in Latin America. With 116 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country. ASIA EX-JAPAN | MSCI Pacific Ex Japan Net Return Index: The index captures large- and mid-cap representation across four of 5 Developed Markets (DM) countries in the Pacific region (excluding Japan). With 150 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country. JAPAN | MSCI Japan Net Return Index: The index is designed to measure the performance of the large and mid cap segments of the Japanese market. With 319 constituents, the index covers approximately 85% of the free float- adjusted market capitalization in Japan. COMMODITIES DEFINITION BLOOMBERG BARCLAYS COMMODITY INDEX | Bloomberg Barclays Commodity Index is a commodity group sub index of the Bloomberg CITR. The index is composed of futures contracts on crude oil, heating oil, unleaded gasoline and natural gas. It reflects the return on fully collateralized futures positions and is quoted in USD. BLOOMBERG BARCLAYS EMERGING MARKETS AGGREGATE BOND INDEX | The Bloomberg Barclays Emerging Markets Aggregate Bond Index is a flagship hard currency Emerging Markets debt benchmark that includes USD-denominated debt from sovereign, quasi-sovereign, and corporate EM issuers.
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Raymond James® is a registered trademark of Raymond James Financial, Inc.UPDATE: TOPICS TO BE ADDRESSED
1 Introduction: Survey and COVID-19 Update
2 Recovery: A Policymaker Experiment
3 Catalysts Repelling Yields From Moving Higher
4 Earnings Under The Microscope
5 Testing Our Theory of Relativity
6 Supply & Demand On The Same Wavelength
7 Chemistry As A Foundation
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