Market MovesDecember 3, 2020

Post-Virus, It’s Back to the Way Things Were, Right? Not Quite

Investing will be somewhat different in the world after the pandemic, Capital Group says.

Reported by Larry Light

The climbing stock market assumes that the economy will flash us back to 2019, once the new vaccines rout the pandemic. There’s good reason to expect such a recovery outcome, but things will be different in 2021 than they were in the before time.

That was the message from a panel of Capital Group experts Wednesday, discussing what the new year might bring. With news that the first doses of vaccine should be available in the US this month, provided that regulators approve them, hope abounds that the economy will come roaring back.

So Capital Group believes that US gross domestic product (GDP) will expand 3.1% next year, as opposed to 2020’s expected 4.3% shrinkage. While 3.1% is no blowout, it’s better than 2019’s so-so 2.3% increase, a figure that was in keeping with the nation’s tepid growth since the 2008-09 financial crisis.

“We could reach herd immunity by mid-2021,” said Jared Franz, an economist with the investment management company (assets: $2.1 trillion). Then, “the U-shaped recovery would become V-shaped,” as growth accelerates. At the moment, though, he noted that some segments of the economy “are not doing well”: lower-income people, small businesses and commercial real estate, for example.

Certainly, Franz went on, the COVID-19 outbreak has helped some sectors, such as home improvement and consumer staples, and furthered those in good condition beforehand, such as tech and health care. The disease has harmed sectors that were growing and got tripped up: think travel and restaurants. Once the pandemic threat is gone, they should benefit from pent-up demand, he said. A tougher road lies ahead for those he called “ripe for disruption”: energy and retail, for instance.

But recovery won’t necessarily be even, the Capital Group panelists indicated. True, said equity portfolio manager Jody Jonsson, amid the pandemic downturn, companies cut costs and became quite efficient. “But everything won’t snap back to the way it was before,” she warned. For example, she wondered whether home exercisers will quickly abandon their Pelotons once they can go back to the gym.

The return of some travel industry stocks to their previous levels puzzled her. Jonsson pointed to cruise lines, which she said would be compelled to spend more to satisfy passengers that a ship was safe. And the cruise companies “won’t be able to pack as many people” aboard as before, she added. Possible result: crimped revenue.

On the other hand, “COVID has accelerated trends that already were in place,” to the benefit of certain sectors, she said. Hence, Jonsson’s firm sees growth in telemedicine ($46 billion in 2019 revenue, jumping to an expected $176 billion in 2026) and wearable medical devices that monitor vital signs ($628 million, rising to $2.4 billion).

One aspect of economic life that shouldn’t change soon, vaccine deliverance or no, is low interest rates. That’s a disappointment for people and investment funds that once enjoyed fat interest payments. John Queen, a Capital Group fixed-income portfolio manager, said people “will have to accept lower income” from bonds, given the Federal Reserve’s penchant for keeping short-term interest rates near zero for several years.