GTM slides - GROWTH - Recovery 2021

The economy grew steadily through the fourth quarter of 2019, until the onset of the pandemic pushed the economy into the most severe recession since WWII. Economic growth has now accelerated with resurgent consumer and investment spending, recovering to the GDP levels of the fourth quarter of 2019 and on track to return to and potentially run above its pre-pandemic 20-year trend growth rate.

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Value looks attractive relative to growth from a valuation standpoint, and remains cheap even as the rotation into value has already begun to materialize. Moreover, earnings for cyclically-orientated value sectors tend to be more sensitive to the real economy (RHS). In fact, 3 of the 5 sectors in which earnings are most sensitive to the economy are value sectors. With this in mind, as the economic recovery continues, value may be well poised to deliver strong returns.

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Market corrections are not infrequent occurrences, but the source of that volatility and correction is constantly in flux. However, over time, volatility subsides and equity markets resume their upward ascent.

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Differing regional responses towards pre-vaccine lockdowns and current vaccine distribution plans have, in part, driven equity performance. For example, China’s strictly enforced lockdown strategy allowed the region to recover from the pandemic well before other economies in 2020, leading to equity outperformance relative to other regions. Since the announcement of successful vaccine candidates, however, economies with more cyclical exposure like Japan and Europe, should benefit from the recovery have begun to outperform. Moreover, valuations remain attractive overseas, relative to the US.

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