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Optimism Energizes Markets Despite Unknowns

Published:11/01/2021


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5 Key Investment Themes for 2021 and Beyond

The events which shaped 2020 have had broad and very personal impacts on all of us. However, with 2020 now in the rear-view, and investor sentiment improving, thanks in large part to the rapid progression of COVID-19 vaccines and treatments, we may finally be able to look forward to calmer days ahead.

The market's resilience in the face of a struggling global economy may be one of the more surprising outcomes to emerge from the volatility in 2020. Despite the prevailing confluence of headwinds that continue to cast doubt on the sustainability of the recovery, markets have demonstrated the uncanny ability to peer into the more distant horizon, and shrug aside any immediate perils.

Against this backdrop, the TD Wealth Asset Allocation Committee (WAAC or "we") has released its annual Market Outlook: The Year Ahead, which helps provide balanced insights that consider some of the headwinds and bright spots markets may face in 2021 and beyond.

The article provides great insights into what has led us to today, and what can be expected in 2021 including views on the various asset classes. The outlook focuses on 5 key factors we expect to sustain the economic recovery, and why we are optimistic about 2021 and beyond. These factors include:

  • Strength in numbers - The strength in global Purchasing Managers Index (PMI) data has provided evidence that the recovery remains on a firm trajectory and that demand is returning to more normalized conditions to fill the output gap. We have also seen a gradual uptick in North American employment data. This combined with healthy consumer spending, and strong housing markets, is further evidence that many sectors of the economy are rebounding.
  • The return to corporate profitably growth – In 2021 S&P 500 Index companies are expected to deliver earning growth of about 22% year-on-year (YoY). This compared to a decline of 7% in 2020 translated well for the economy, as strong corporate heath is key for long-term economic growth.
  • Effective and aggressive policy action – A continuation of coordinated policy efforts to help combat the longer-term impacts of the COVID-19 pandemic is expected.
  • Vaccines – Hope that vaccines will be the game changer of 2021, as well as the great performance equalizer for the many businesses and individuals that were left behind in 2020.
  • Markets react positively to U.S. Presidential Election outcome - Markets responded positively to a Joe Biden presidency. There is also optimism around the potential for a pivot back to a more multilateral approach to U.S. foreign policy when engaging with the international community.

In a nutshell
The WAAC expects economic growth to be modestly positive in 2021. Unlike the Global Financial Crisis of 2008/2009, we do not expect governments to dial back expenditures, as such, both monetary and fiscal conditions should remain accommodative and provide the necessary backstop against potentially deteriorating economic conditions.

Overall, TDAM remains committed to a disciplined investment process, that seeks assets offering attractive value and strong risk/return characteristics. As we navigate any future uncertainty, we maintain our conviction in structuring well diversified, multi-asset portfolios, that can best manage risk, and deliver solid results in all market conditions.

The information contained herein has been provided by TD Asset Management Inc. and is for information purposes only. The information has been drawn from sources believed to be reliable. The information does not provide financial, legal, tax or investment advice. Particular investment, tax, or trading strategies should be evaluated relative to each individual's objectives and risk tolerance.

Certain statements in this document may contain forward-looking statements (“FLS”) that are predictive in nature and may include words such as “expects”, “anticipates”, “intends”, “believes”, “estimates” and similar forward-looking expressions or negative versions thereof. FLS are based on current expectations and projections about future general economic, political and relevant market factors, such as interest and foreign exchange rates, equity and capital markets, the general business environment, assuming no changes to tax or other laws or government regulation or catastrophic events. Expectations and projections about future events are inherently subject to risks and uncertainties, which may be unforeseeable. Such expectations and projections may be incorrect in the future. FLS are not guarantees of future performance. Actual events could differ materially from those expressed or implied in any FLS. A number of important factors including those factors set out above can contribute to these digressions. You should avoid placing any reliance on FLS.

The TD Wealth Asset Allocation Committee (WAAC) is comprised of a diverse group of TD investment professionals. The WAAC’s mandate is to issue quarterly market outlooks which provide its concise view of the upcoming market situation for the next six to eighteen months. The WAAC’s guidance is not a guarantee of future results and actual market events may differ materially from those set out expressly or by implication in the WAAC’s quarterly market outlook. The WAAC market outlook is not a substitute for investment advice.

®The TD logo and other trademarks are the property of The Toronto-Dominion Bank or its subsidiaries

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