Nanette Abuhoff Jacobson, managing director and multi-asset strategist for Wellington Management and global investment strategist for Hartford Funds
Daniel Cook, CFA, Investment Strategy Analyst
As we approach the second half of the year, how might vaccine progress, policy support, and continuing inflation pressures impact investors?
There is a growing sense that the world is getting back to normal—and what a relief it is! We see more people venturing out, getting haircuts, going to hotels and restaurants, and returning to the office. Unfortunately, many countries are still dealing with more contagious and virulent mutations of COVID-19 and low vaccination rates. But, in aggregate, the global economy is recovering with the aid of accommodative fiscal and monetary policy, supporting the strong performance of risk assets1 and the continued rotation from growth to value.
John Butler, Macro Strategist
I believe we're likely on the verge of an inflation regime change.
The global macro discourse has shifted over the past few months to a debate around “good” vs. “bad” inflation. I think there is a better way to frame it. In my view, as we look ahead, the question should be: Will we see a continuation of the status quo or are we on the verge of a regime change? I think there is a high chance it will be the latter.
Global Macro Outlook: How the US Savings Glut Could Boost the Services Economy and Sustain the Expansion
Juhi Dhawan, PhD, Macro Strategist
A historically high level of excess savings could fuel a multiyear increase in services spending, benefiting industries such as healthcare, travel, and recreation.
Cumulatively, 25% of GDP has been spent by Congress to help Americans weather the pandemic. During the shutdown, governments stepped in to replace lost income and help individuals and families make ends meet. In the latest government package, passed in March 2021, the focus remained squarely on ailing consumers, with two-thirds of the stimulus aimed at low- and middle-income earners. Cash-strapped consumers at lower income levels are more likely to spend the money quickly and to spend it on necessities such as food and rent rather than on discretionary items.
Thomas Mucha, Geopolitical Strategist
We believe the intersection of climate change and national security is in its early stages.
The US military defines a complex catastrophe as a “natural or man-made incident...that results in cascading failures of multiple, interdependent, critical, life-sustaining infrastructure sectors and causes extraordinary levels of mass casualties, damage, or disruption severely affecting the population, environment, economy, public health, national morale, response efforts, and/or government functions.” We see climate change as a complex catastrophe in the making, with the potential to exacerbate geopolitical instability and multiply threats to economic and national security.
The innovative tech sector is driving growth, and investors may still be poised to benefit.
Innovation is constantly improving the lives of people all across the globe—transforming our homes, schools, businesses, and daily lives. From digital payments helping to make finance more accessible, to the cloud and the Internet of Things (IoT) boosting efficiency everywhere from farms to factories, to artificial intelligence solving problems from auto safety to disease diagnosis—the world’s progress is grounded in innovation.
Emily Bannister, CFA, Fixed Income Investment Director
Richard Gilmartin, Fixed Income Investment Director
The new structural shifts in the fixed-income market require a new approach to investing.
Many fixed-income investors continue to position portfolios for a cyclical rebound in economic activity.2 We acknowledge that the extraordinary monetary and fiscal stimulus by global central banks and governments, along with ongoing vaccination rollouts, will spur continued economic recovery. However, we observe long-term structural changes that could lead to an environment of increased frequency of dislocations across fixed-income markets. We’ve been in a long-term trend of falling interest rates and tightening credit spreads3 that caused most traditional fixed-income benchmarks to perform well, particularly the ones with longer durations and meaningful credit components. But we believe 2021 will be characterized by transition to a new fixed-income reality, and that investors should focus on how to generate total returns when neither duration4 nor credit are an obvious solution.
Gillian Edgeworth, Macro Strategist
Jamie Rice, Equity Portfolio Manager
Michael Henry, Fixed Income Portfolio Manager
We think emerging-markets inflation is close to its peak level for 2021 and will be followed by a “disinflationary” trend taking hold in the latter part of the year.
Emerging-markets (EM) inflation has been top o fmind for many EM investors lately—and with good reason. Overall, EM inflation has more than doubled from a record low just last year to reach 4.7% year over year as of April 2021, based on a JP Morgan GBI-EM Global Diversified Index (ex-China) weighted basket of EM countries. We believe this sharp increase in emerging-markets inflation captures several key dynamics.
1 Risk assets (such as equities, commodities, high-yield bonds, real estate, and currencies) have a significant degree of price volatility.
2 Based on our analysis of separate account and mutual fund positioning in eVestment and Morningstar
3 Spreads are the difference in yields between two fixed-income securities with the same maturity, but originating from different investment sectors.
4 Duration is a measure of the sensitivity of an investment’s price to nominal interest-rate movement.
Important Risks: Investing involves risk, including the possible loss of principal. • Foreign investments may be more volatile and less liquid than US investments and are subject to the risk of currency fluctuations and adverse political, economic, and regulatory developments. These risks may be greater, and include additional risks for investments in emerging markets or if the Fund focuses in a particular geographic region or country. • Fixed income security risks include credit, liquidity, call, duration, and interest-rate risk. As interest rates rise, bond prices generally fall.
The views expressed here are those of Wellington Management. They should not be construed as investment advice. They are based on available information and are subject to change without notice. Portfolio positioning is at the discretion of the individual portfolio management teams; individual portfolio management teams and different fund sub-advisers may hold different views and may make different investment decisions for different clients or portfolios. This material and/or its contents are current as of the time of writing and may not be reproduced or distributed in whole or in part, for any purpose, without the express written consent of Wellington Management or Hartford Funds.
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