Economic Outlook Speaker Forecasts Market Resilience, Investor Opportunity

Economic Outlook Speaker Forecasts Market Resilience, Investor Opportunity

While the challenges of 2020 — the pandemic, increases in bankruptcies and job loss, social unrest, election uncertainty, and more — remain unresolved, a historical perspective supports predictions for an economic rebound in 2021.  That was the upshot of a multilayered presentation by H. Cameron Hinds CFA, speaking to a virtual audience at the Chamber’s Annual Economic Breakfast on September 22.  Hinds, the Chief Investment Officer for Wells Fargo Private Bank’s Central Region, emphasized investment strategies that would show resilience in the coming months.

Hinds began his overview by balancing well-known current problems against some positive factors moving the economy forward.  Aggressive monetary and fiscal stimulus programs, low interest rates, and pent-up demand during the lockdown suggest that economic growth will rebound, especially if progress is made soon toward an effective coronavirus vaccine.  Wells Fargo anticipates that US GDP will fall by -3.7 percent through 2020, but will turn around with growth of 3.8 percent in 2021.  Hinds also noted that modest improvement has been made since job losses spiked earlier this year and forecasts an unemployment rate of around 6.5 percent by the end of 2021.

Perhaps the most influential steadying force in the economy has been the historically low interest rates maintained by the Federal Reserve.  Fed Chair Jerome Powell has pledged to keep rates near zero at least through the end of 2021, injecting more cash into the economy with a goal of increasing inflation to 2 or 2.5 percent.  Hinds noted that the low interest rates have softened the negative impact of debt service on the swelling U.S. budget deficit.  Low rates also attract investors to stocks, especially U.S. large cap and mid cap equities, where returns are significantly higher than bonds.

Hinds offered historical data regarding the links between economic and political outcomes.  He noted that pivotal economic markers are split between favoring the candidates: the relatively stable stock market and increases in disposable income (supported via stimulus checks) would benefit Trump, while continued problems with unemployment and consumer confidence would attract voters to Biden.  Although stock markets typically respond well in the short term to the reelection of incumbents, no consistent correlation to returns can be shown to either the party holding the presidency or to the party uniformity between Congress and the White House.  In other words, economic recovery will be driven largely by factors separate from the election outcome.

The Chamber would like to thank Lisa Bertagna and the staff of Wells Fargo Private Bank for their assistance in organizing the Annual Economic Outlook Breakfast and ComEd for its sponsorship of the event.