Jerry's Commentary: 2021 Economic Outlook
I am a firm believer in the people. If given the truth, they can be depended upon to meet any national crisis. The great point is to bring them the real facts, and beer.
― Abraham Lincoln
After recent events in the US, a quote from Honest Abe was never more appropriate.
I attended the virtual breakfast for the 2021 Economic Outlook meeting this morning.
Avery Shenfeld, Chief Economist & Managing Director - CIBC Capital Markets
Craig Wright, Chief Economist & Senior Vice President - RBC Royal Bank
Derek Burleton, Deputy Chief Economist & Vice President - TD Bank Group
Douglas Porter, Chief Economist & Managing Director - BMO Financial Group
Jean-François Perrault, Chief Economist & Senior Vice President – Scotiabank
Stefane Marion, Chief Economist and Strategist, National Bank of Canada
Some of the highlights of the discussion;
- On global economy there is big consensus that the direction for 2021 and 2022 is positive. Look for a 5 1/2% rebound in GDP in 2021. Typically global GDP would be in the 3% range so it is well above average. Risks to the downside are mostly related 2 Covid 19 But consensus is that this would delay in recovery and not stop it.
- The US economy is expected to have a very significant expansion well into 2022 the new government is likely to turbocharge the US economy and while new taxes are a concern the likelihood of any large changes in the short term is pretty limited.
- For the economy in general it is expected that interest rates will stay low for at least the next one to two years.
- In the bond market as central banks stop their purchases it is expected that long-term yields will continue to go higher but short term rates will stay near 0.
- For the equity markets consensus is to expect a bumpy start to the year, but that this too shall pass. Moderate earnings growth and dividends should result in a positive year for equity markets.
- The Canadian dollar is likely to stay strong however the Bank of Canada knows that a strong dollar is not good for the Canadian economy. They will not be in a hurry to raise interest rates and are likely to stay behind The US Federal Reserve in any rate moves.
- For the Canadian economy Canada has managed the pandemic better than most countries which has most bullish on the C$.
- Oil and gas companies in Canada are quickly changing to energy companies as 75% of the renewable investments are coming from the oil and gas sector.
- Lots of discussion around changes To the way we work, shop and learn. Working from home is likely to be more of a hybrid model than the way it is today for most people.
- People may be underestimating the amount of pent up demand there is in the system that will be unleashed when the vaccines are complete.
- For Canadian housing they are predicting 7% decline for 2021. This will come mostly from the condo market in Toronto and Vancouver.
- Bitcoin, None of the 6 would admit to being interested in Cryto as an asset class. They can see why it is going up if investors think it is a hedge against inflation but contend that it is as likely to go up 50% as it is to go down 50%. There are no fundamentals supporting the price which for most makes it un-investable. It is not useful as a currency as so few people hold it and those that do are not transacting with it.
- Commodities should continue to do well in the recover which should bode well for the TSX and Canada in general.
Phil Peterson’s recap
- Short term correction would be an opportunity to increase equity exposure
- Most risks are to the upside
- Fixed income will be challenging, stay short corporate or high yield and expect the yield as the return minus the fees
- Canadian dollar to go to 81-82 c base on the expected move in oil to $55.00
- Places to invest, TSX, EM, commodities, gold in equites and short corporates and HY in bonds, Gov’t bonds -5% for the year
- In 2021 earnings will be much higher but multiples will be lower, still should be low single digit for the stock market.
- Canadian banks attractive as long rates rise and loan loses are not as bad as estimated.
See the link below for the 2021 forecast from most financial institutions.
Here’s (Almost) Everything Wall Street Expects in 2021 (bloomberg.com)
Let me know if you have any questions.