September 2020 Shape Your ConvictionTM
Global Macro Outlook: Navigating A Post- Pandemic World
Peter Berezin Chief Global Strategist Director of Research
MAR APR MAY JUN JUL AUG SEP
0 0
MAR APR MAY JUN JUL AUG SEP 10
0 0 10 20
10 Shape Your ConvictionTM
10 20
Number Of New Cases Now Trending Lower In The US, 30
And Higher In Europe 20
20 30
Th Th Th60 Th60 40
US 30 EUROPEAN UNION
NEW CASES NEWTOTALCASES (7-DAY MOVING AVERAGE) 80 80 GERMANY
NORTHEAST RESTGERMANY OF EU FRANCE
30
SOUTHEAST ITALYFRANCE 40
50 SPAIN 50
MIDWEST 50 SPAINSPAIN ITALY SOUTHWEST 40 FRANCEITALY
WEST RESTGERMANYREST OF OF EU EU TOTAL (7-DAY MOVING AVERAGE)
CASES
TOTAL (7-DAY MOVING AVERAGE) NEWTOTALTOTAL (7-DAY (7-DAY MOVING MOVING AVERAGE) AVERAGE) GERMANY
EUROPEAN UNION
60 60 40 FRANCE 40
40 60 50
SPAIN
50
ITALY
REST OF EU
NEW CASES
30 EUROPEAN UNION 30
60 40 40 50
20 20
20 20
10 10
0 0 0 0 MAR APR MAY JUN JUL AUG SEP MAR APR MAY JUNJUN JUL AUG SEP 2020 2020 SOURCE: THE CENTER FOR SYSTEMS SCIENCE AND ENGINEERING (CSSE) AT JOHN HOPKINS UNIVERSITY.
1 Shape Your ConvictionTM
Not So Fast
US STATES: REOPENING STATUS
WASH. ME. MONT. N.D. ORE. MINN. VT. N.H. WIS. IDAHO S.D. N.Y. MASS. WYO. MICH. CONN. R.I. PA. NEB. IOWA N.J. NEV. OHIO MD. UTAH ILL. IND. DEL. W. VA. COLO. KAN. VA. KY. CALIF. MO. N.C. TENN. ARIZ. N.M. OKLA. ARK. S.C.
ALA. GA. MISS. REOPENED
TEXAS REOPENING LA. PAUSING FLA. REVERSING
ALASKA
HAWAII
JASMINE C. LEE, SARAH MERVOSH, YURIRIA AVILA, BARBARA HARVEY, AND ALEX LEEDS MATTHEWS, “SEE HOW ALL 50 STATES ARE REOPENING (AND CLOSING AGAIN,” THE NEW YORK TIMES, UPDATED SEPTEMBER 10, 2020. 2 Shape Your ConvictionTM More Than Half Of The US Population Lives In States That Are Suspending Or Reversing Reopening Plans
70% %70 SHARE OF POPULATION-WEIGHTED STATES WITH THEIR REOPENING ON HOLD OR REVERSING, TIGHTENING RESTRICTIONS, OR ON LOCKDOWN
60 60
50 50
40 40
30 30
20 20
10 10
2020 0 0 MAYMAY JUNEJUN JULYJUL AUGUSTAUG SEPTEMBERSEP 20202020 BASED ON JASMINE C. LEE, SARAH MERVOSH, YURIRIA AVILA, BARBARA HARVEY, AND ALEX LEEDS MATTHEWS, “SEE HOW ALL 50 STATES ARE REOPENING (AND CLOSING AGAIN,” THE NEW YORK TIMES, UPDATED SEPTEMBER 9, 2020.
3 Shape Your ConvictionTM
High Odds Of A Vaccine Within 6-12 Months
100 100 % %
"WHEN WILL ENOUGH DOSES OF FDA-APPROVED COVID-19 VACCINE(S) TO INOCULATE 25 MILLION PEOPLE BE DISTRIBUTED IN THE UNITED STATES?" BETWEEN 1 OCTOBER 2020 AND 31 MARCH 2021
80 BETWEEN 1 APRIL 2021 AND 30 SEPTEMBER 2021 80 NOT BEFORE 1 APRIL 2022
60 60
40 40
20 20
0 2020 0 MAY JUN JUL AUG SEP 2020 SOURCE: GOOD JUDGMENT INC. FORECASTS FROM GOOD JUDGMENT’S PROFESSIONAL SUPERFORECASTERS. DATA ACCESSED SEPT. 14, 2020.
4 Shape Your ConvictionTM
Fiscal Policy Has Been Eased
% Of16 % Of GDP GDP FISCAL STIMULUS SIZE AS A % OF GDP*
2008-2010 2020
12 12
8 8
4 4 RUSSIA US SPAIN CHINA ITALY GERMANY JAPAN CANADA FRANCE UK 0 NOTE:NOTE: LOAN LOAN GUARANTEES GUARANTEES AREARE EXCLUDED EXCLUDED IF THERE IF THERE IS A SPECIFIC IS A SPECIFIC AMOUNT AMOUNT IN THE NEWS. IN THE NEWS. * *SOURCE:SOURCE: VARIOUS VARIOUS NEWS NEWS AND GOVERNMENTAND GOVERNMENT AGENCIES, AGENCIES, BROOKINGS, BROOKINGS, THE IMF, ANDTHE BCA IMF, CALCULATIONS. AND BCA CALCULATIONS.
5 Shape Your ConvictionTM
Drastic Drop In Weekly Unemployment Insurance Payments
Mn US$ US Bn CONTINUING UNEMPLOYMENT INSURANCE CLAIMS (ALL PROGRAMS)* (LS) WEEKLY UNEMPLOYMENT INSURANCE BENEFIT PAYMENTS** (RS)
30 30
25 25
20 20
15 15
10 10
5 5
JAN FEB MAR APR MAY JUN JUL AUG SEP 2020 * SOURCE: US DEPARMENT OF LABOR. ** SOURCE: US TREASURY; SHOWN SMOOTHED.
6 Shape Your ConvictionTM
Personal Income Has Actually Accelerated This Year
US US US$ US$ Tn Tn Tn Tn US +11% US REAL PERSONAL INCOME REAL PERSONAL INCOME LESS TRANSFER PAYMENTS -9%
14 14 18 18
13 13 16 16
12 12
14 -4% 14
-8%
11 11
12 12
2006 2008 2010 2012 2014 2016 2018 2020 2006 2008 2010 2012 2014 2016 2018 2020 NOTE: SHOWN ANNUALIZED AND IN 2012 US DOLLARS. NOTE: SHOWN ANNUALIZED AND IN 2012 US DOLLARS. SHADING DENOTES NBER-DESIGNATED RECESSIONS. SHADING DENOTES NBER-DESIGNATED RECESSIONS.
7 Shape Your ConvictionTM
There Is Much Public Support For Fiscal Stimulus
Question:
As you may know, earlier this year Congress passed an expansion of federal unemployment compensation providing as much as $600 a week in additional relief due to the coronavirus pandemic. This expansion expired in July.
Do you support or oppose continuing this expanded unemployment compensation until at least January 2021?
JULY 13 JUNE 30 SUPPORT NOT SURE OPPOSE
Overall 65 41% strongly support 8 27 67 24 67 26
Democrats 78 58% strongly support 7 15 81 14 82 13
Independents 63 33% strongly support 8 29 71 20 54 29
Republicans 50 24% strongly support 8 42 50 37 53 41
NATIONWIDE SURVEY OF REGISTERED VOTERS; EACH WAVE REPRESENTS APPROXIMATELY 1,000 INTERVIEWS TAKEN OVER THE PRIOR THREE-FIVE DAYS. LATEST WAVE CONDUCTED AUGUST 6-10, 2020. SOURCE: NAVIGATOR.COM.
8 Shape Your ConvictionTM
Nasdaq Volatility Declined Even As Share Prices Tumbled
12250 50 %
NASDAQ COMPOSITE 12000 STOCK PRICE (LS) 45 VOLATILITY INDEX (RS) 11750
40 11500
11250 35
11000
30 10750
10500 25 11 12 13 14 17 18 19 20 21 24 25 26 27 28 31 1 2 3 4 8 9 10 11 AUG 2020 SEP
9 Shape Your ConvictionTM
The Pros Missed The Rally
% % US AAII INVESTOR SENTIMENT* BEARISH BULLISH 50 50
40 40
30 30
20 20
% % NET: BULLS MINUS BEARS
30 30
20 20
10 10
0 0
-10 -10
-20 -20
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 * SHOWN SMOOTHED EXCEPT FOR LATEST DATAPOINT. SOURCE: AMERICAN ASSOCIATION OF INDIVIDUAL INVESTORS.
10 Shape Your ConvictionTM
Real Rates Have Collapsed
% % US 3.0 10-YEAR TREASURY YIELD 3.0 10-YEAR TIPS BREAKEVEN INFLATION
2.5 2.5
2.0 2.0
1.5 1.5
1.0 1.0
.5 .5
% % 10-YEAR TIPS YIELD
1.5 1.5
1.0 1.0
.5 .5
0 0
-.5 -.5
-1.0 -1.0
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP 2019 2020
11 Shape Your ConvictionTM
Lower Real Yields Have Lifted Equity And Gold Prices
% US$/ % Oz GOLD PRICE (LS) US US 10-YEAR TIPS YIELD S&P 500 FORWARD P/E (LS) 2000 (INVERTED, RS) -.8 10-YEAR TIPS YIELD (INVERTED, RS) -.8 22 -.4 1800
0 -.4 20 1600 .4
1400 0 .8 18
1200 1.2
.4 1.6 16 1000
2.0 .8 800
14 2.4
600 2.8 1.2
2017 2018 2019 2020 2008 2010 2012 2014 2016 2018 2020
12 Shape Your ConvictionTM
The Present Value Of Earnings: A Scenario Analysis
160 160 160 160 % CHANGE IN NET PRESENT CHANGE IN NET PRESENT % 24% VALUE OF EARNINGS VALUE OF EARNINGS 24% (ASSUMING NO CHANGE IN (AFTER TAKING INTO ACCOUNT 20 INTEREST RATES) CHANGE IN INTEREST RATES) 20 20% 20% 19.9% 16 16 16% 17.5% 16% 140 140 140 140 12 12 12% 12%
8 SCENARIO 2: 8 8% WORSE- 8% SCE- THAN- 4 NARIO 1: EXPECTED 4 4% LATEST EPS EPS 4% 120 120 GROWTH GROWTH 120 120 0 ESTIMATES** SCENARIO*** 0 0% 0% SCENARIO 1: SCENARIO 2: LATEST EPS WORSE- --44% -2.4% GROWTH THAN- -4-4% ESTIMATES** EXPECTED -4.7% EPS --88% GROWTH -8-8% SCENARIO*** 100 100 100 EARNINGS GROWTH SCENARIOS: 100 EARNINGS GROWTH SCENARIOS: --1212% -12-12% BASELINE: S&P 500 REAL EPS GROWTHBASELINE: ESTIMATE S&P 500 REAL FROM EPS --1616% -16-16% BEGINNINGGROWTH ESTIMATE OF YEAR* FROM BEGINNING OF YEAR* SCENARIO 1: LATEST EPS --2020% -20-20% SCENARIO 1: LATEST EPS 80 GROWTH ESTIMATES** 80 GROWTH ESTIMATES** 80 80 -24% -24% SCENARIO 1: LATEST EPS GROWTH SCENARIO 2: WORSE-THAN-EXPECTED SCENARIO 1: LATEST EPS GROWTH SCENARIO 2: WORSE-THAN-EXPECTED SCENARIO 2: WORSE-THAN- % CHANGEESTIMATES** IN PRESENTEPS GROWTH VALUE SCENARIO*** OF % CHANGEESTIMATES** IN PRESENTEPS GROWTH VALUE SCENARIO*** OF EXPECTEDSCENARIO EPS2: WORSE-THAN- GROWTH EARNINGS RELATIVE TO BASELINE EARNINGS RELATIVE TO BASELINE EXPECTED EPS GROWTH ARISING FROM A LOWER EARNINGS ARISING FROM A LOWER EARNINGS SCENARIO*** PATH AND NO CHANGE IN THE PATH AND A 94 BPS DECLINE IN THE SCENARIO*** RISK-FREE RATE RISK-FREE RATE (COMMENSURATE WITH ACTUAL DECLINE IN THE 60 60 % CHANGE IN PRESENT VALUE30-YEAR OF EARNINGS US TIPS RELATIVEYIELD SINCE TO BASELINE THE ARISING FROM A LOWER EARNINGSSTART PATH AND OF THEA 82 BPSYEAR) DECLINE IN THE 60 201920202021 202220232024202520262027202820292030 60 RISK-FREE RATE (COMMENSURATE WITH ACTUAL DECLINE IN THE 30-YEAR 201920202021 202220232024202520262027202820292030 US TIPS YIELD SINCE THE START OF THE YEAR) NOTE: BOTTOM-UP ESTIMATES FOR S&P 500 FROM REFINITIV/IBES. NOTE: BOTTOM-UP ESTIMATES FOR S&P 500 FROM REFINITIV/IBES. * EPS GROWTH ESTIMATE FROM BEGINNING OF YEAR USED FOR 2020-2022, 3% * EPS GROWTH ESTIMATE FROM BEGINNING OF YEAR USED FOR 2020-2022, 3% EPS GROWTH IN 2023-2025, 2% EPS GROWTH THEREAFTER; % CHANGE IN PRESENT VALUEEPS GROWTH OF EARNINGS IN 2023-2025, RELATIVE 2% EPS TO GROWTH BASELINE THEREAFTER; 2% RISK-FREE RATE AND 5% ERP THROUGHOUT ENTIRE PERIOD. ARISING FROM A LOWER2% EARNINGS RISK-FREE PATH RATE AND AND 5% NO ERP CHANGE THROUGHOUT IN THE ENTIRE PERIOD. ** LATEST EPS GROWTH ESTIMATES USED FOR 2020-2022; ** LATEST EPS GROWTH ESTIMATES USED FOR 2020-2022; EARNINGS ASSUMED TO RETURN TO BASELINE IN 2024. EARNINGSRISK-FREE ASSUMED RATE TO RETURN TO BASELINE IN 2024. *** LATEST EPS GROWTH ESTIMATES USED FOR 2020; *** LATEST EPS GROWTH ESTIMATES USED FOR 2020; EARNINGS ASSUMED TO RETURN TO BASELINE IN 2030. EARNINGS ASSUMED TO RETURN TO BASELINE IN 2030.
13 Shape Your ConvictionTM
Favor Equities Over Bonds Over A 12-Month Horizon
BPs BPs
CYCLICALLY-ADJUSTED P/E* CYCLICALLY-ADJUSTED GLOBAL EQUITY RISK PREMIUM* US GLOBAL GLOBAL EXCLUDING US US GLOBAL 50 50 600 EXCLUDING US 600
40 40 400 400
200 200 30 30
0 0 20 20
-200 -200
1988 1992 1996 2000 2004 2008 2012 2016 2020 1988 1992 1996 2000 2004 2008 2012 2016 2020 * BASED ON A 10-YEAR MOVING AVERAGE OF REAL EARNINGS PER-SHARE. * CYCLICALLY-ADJUSTED EARNINGS YIELD MINUS REAL 10-YEAR NOTE: GLOBAL IS THE MARKET CAPITALIZATION-WEIGHTED AVERAGE OF THE US, GOVERNMENT BOND YIELD. BOND YIELD DEFLATED USING HEADLINE EURO AREA, JAPAN, UK, CANADA, AUSTRALIA, SWITZERLAND, SWEDEN, CONSUMER PRICES AND 10-YEAR CPI SWAPS. AND EMERGING MARKETS. NOTE: GLOBAL IS THE MARKET CAPITALIZATION-WEIGHTED AVERAGE OF THE US, SOURCE: REFINITIV DATASTREAM AND MSCI INC. (SEE COPYRIGHT DECLARATION). EURO AREA, JAPAN, UK, CANADA, AUSTRALIA, SWITZERLAND, SWEDEN, AND EMERGING MARKETS. SOURCE: REFINITIV DATASTREAM AND MSCI INC. (SEE COPYRIGHT DECLARATION).
14 Shape Your ConvictionTM
The US Dollar Will Weaken Further
USD/ BPs Ann% EUR USD/EUR (LS) Chg US TRADE-WEIGHTED DOLLAR* (INVERTED, LS) US MINUS EURO AREA 2-YEAR REAL YIELD* (RS) -15 GLOBAL MANUFACTURING PMI** (RS) 62 .95 300 -10 58 .90 200 -5 54 .85 100 0 50 .80 0 5 46 .75 Interest rate differentials no -100 10 42 .70 longer favor the dollar 15 -200 38 .65 20 34 2006 2008 2010 2012 2014 2016 2018 2020 2006 2008 2010 2012 2014 2016 2018 2020 * NOMINAL YIELD MINUS CPI SWAP RATE. * BROAD, NOMINAL. SOURCE: FEDERAL RESERVE. ** SOURCE: MARKIT/ J.P. MORGAN. % % US TRADE-WEIGHTED DOLLAR* (INVERTED, LS) MANUFACTURING PMI**: G10 RELATIVE TO THE US (RS) DEVIATION FROM PPP FAIR VALUE* The dollar is 6 10 not cheap 10 105 Stronger growth outside 4 the US should 0 0 110 hurt the dollar JPY SEK AUD CHF GBP EUR 2 CAD NOK USD NZD -10 -10 115 0
-2 -20 -20 120 -4 -30 -30 125 -6
2016 2018 2020 * BROAD, NOMINAL. SOURCE: FEDERAL RESERVE. * OUR FX PPP MODEL IS BASED ON RELATIVE PRICE RATIOS AGGREGATED USING FIVE ** SOURCE: MARKIT/ J.P. MORGAN. GROUPS IN THE CPI BASKET WITH CUSTOM WEIGHTS. PLEASE REFER TO FX AUGUST 23, 2019 SPECIAL REPORT TITLED "A FRESH LOOK AT PURCHASING POWER PARITY" FOR FURTHER DETAILS.
15 Shape Your ConvictionTM Being A Contrarian Doesn’t Pay When It Comes To Trading The Dollar
12 % %12 10 US TRADE-WEIGHTED DOLLAR* SUBSEQUENT RETURN** 10 US TRADE-WEIGHTED DOLLAR* SUBSEQUENT RETURN** DEPENDING ON WHETHER THE DOLLAR IS: The US dollar is currently DEPENDING ON WHETHER THE DOLLAR IS: 8 8 ABOVE BELOW trading below its various ABOVE BELOW 6 moving averages 6 4 4 2 2 0 0 -2 -2 -4 -4 -6 -6 3-MONTH MOVING 6-MONTH MOVING 12-MONTH MOVING 24-MONTH MOVING 3-MONTH MOVING 6-MONTH MOVING 12-MONTH MOVING 24-MONTH MOVING AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
* BROAD, NOMINAL. SOURCE: FEDERAL RESERVE. * BROAD, NOMINAL. SOURCE: FEDERAL RESERVE. 15% 15% US TRADE-WEIGHTED DOLLAR* SUBSEQUENT RETURN** US TRADE-WEIGHTED DOLLAR* SUBSEQUENT RETURN** 10 DEPENDING ON WHETHER US DOLLAR SENTIMENT*** IS: Dollar sentiment is 10 DEPENDING ON WHETHER US DOLLAR SENTIMENT*** IS: currently bearish and deteriorating 5 5
0 0
-5 -5
-10 -10 BULLISHABOVE BEARISHBELOW IMPROVINGIMPROVINGDETERIORATINGDETERIORATING BULLISHABOVE & BULLISHABOVE & BEARISHBELOW & ABOVEBEARISH & ABOVE BELOW IMPROVINGDETERIORATING ABOVE ABOVE BELOW ABOVE AVERAGE AVERAGE IMPROVINGAVERAGE &DETERIORATINGAVERAGE & AVERAGEIMPROVING & AVERAGEDETERIORATING & AVERAGE AVERAGE AVERAGE & AVERAGE & AVERAGE & AVERAGE & IMPROVING DETERIORATING IMPROVING DETERIORATING IMPROVING DETERIORATING IMPROVING DETERIORATING * BROAD, NOMINAL. SOURCE: FEDERAL RESERVE. ** ANNUALIZED AVERAGE ONE-MONTH FORWARD RETURNS SINCE 1992. *** NOTE: BCA RESEARCH CALCULATIONS BASED ON MARKETVANE.NET DATA.
* BROAD, NOMINAL. SOURCE: FEDERAL RESERVE. * BROAD, NOMINAL. SOURCE: FEDERAL RESERVE. ** ANNUALIZED AVERAGE ONE-MONTH FORWARD RETURNS SINCE 1992. ** ANNUALIZED AVERAGE ONE-MONTH FORWARD RETURNS SINCE 1992. *** NOTE: BCA RESEARC CALCULATIONS BASED ON MARKETVANE.NET DATA. *** NOTE: BCA RESEARC CALCULATIONS BASED ON MARKETVANE.NET DATA. 16 Shape Your ConvictionTM
Cyclical Stocks Will Outperform If The Dollar Weakens
Ann% Ann% Chg Chg
30 US TRADE-WEIGHTED DOLLAR* (INVERTED, LS) -15 STOCKS**: ACW CYCLICALS*** / DEFENSIVES**** (RS)
20 -10
-5 10
0 0
5 -10
10 -20
15
-30
2020
2000 2004 2008 2012 2016 2020 * BROAD, NOMINAL. SOURCE: FEDERAL RESERVE. ** IN US DOLLARS. SOURCE: MSCI INC (SEE COPYRIGHT DECLARATION). *** DEFINED AS FINANCIALS, CONSUMER DISCRETIONARY, INDUSTRIALS, ENERGY AND MATERIALS. **** DEFINED AS CONSUMER STAPLES, HEALTH CARE, UTILITIES, AND TELECOM.
17 Shape Your ConvictionTM Non-US Equities Tend To Outperform Their US Peers When Global Growth Is Improving And The Dollar Is Weakening
Ann% Ann% Chg GLOBAL MANUFACTURING PMI* (LS) Chg STOCKS**: ACW EX US / US (RS) 50 20 40
30 10 20 0 10
0 -10 -10 -20 -20
-30 -30
Ann% Ann% Chg US BROAD NOMINAL TRADE-WEIGHTED DOLLAR*** (INVERTED, LS) Chg STOCKS**: ACW EX US / US (RS)
20 -10
-5 10
0 0 5
10 -10
15 -20
2000 2004 2008 2012 2016 2020 * SOURCE: MARKIT/ J.P. MORGAN. ** IN US DOLLARS. SOURCE: MSCI INC (SEE COPYRIGHT DECLARATION). *** SOURCE: FEDERAL RESERVE.
18 Shape Your ConvictionTM
Pivot Towards Value
Ann% Chg 130 US BROAD NOMINAL TRADE-WEIGHTED DOLLAR* (LS) 2.0 5 STOCKS**: ACW GROWTH / VALUE (RS) 1
120 1.8 0 0 1.6 -5 110 1.4 -1 -10
100 1.2 -15 -2 1.0 -20 90 -3 .8 GLOBAL LEADING ECONOMIC INDICATOR* (LS) -25 STOCKS**: ACW MSCI VALUE / GROWTH (RS)
1998 2002 2006 2010 2014 2018 2002 2006 2010 2014 2018 * SOURCE: FEDERAL RESERVE. * INCLUDES 23 COUNTRIES, SHOWN AS A DEVIATION FROM TREND. BASED ON BCA ** IN US DOLLARS. SOURCE: MSCI INC. (SEE COPYRIGHT DECLARATION). RESEARCH CALCULATIONS. ** IN US DOLLARS. SHOWN SMOOTHED. SOURCE: MSCI INC. (SEE COPYRIGHT DECLARATION)
Ann% Ann% Chg US RETAIL SALES Chg Ann% Ann% NONSTORE RETAILERS Chg Chg 25 TOTAL* 25 PC SHIPMENT VOLUMES* STORE RETAILERS** 20 20
15 15 5 5
10 10
0 0 5 5
0 0 -5 -5 -5 -5
-10 -10 -10 -10 -15 -15
1992 1996 2000 2004 2008 2012 2016 2020 2012 2014 2016 2018 2020 * TOTAL RETAIL AND FOOD SERVICES. * LATEST DATA POINTS ARE ESTIMATES BASED ON BCA RESEARCH AND ** TOTAL MINUS NONSTORE. INTERNATIONAL DATA CORPORATION . NOTE: ALL SERIES SHOWN SMOOTHED EXCEPT FOR LATEST DATA POINT.
19 Shape Your ConvictionTM
Value Stocks Are Cheap
%
MSCI ALL-COUNTRY WORLD* VALUE / GROWTH 3 VALUATION INDICATOR* 3 .45 STOCK PRICES: ACW BANKS / 6 BROAD MARKET* (LS) JP MORGAN GLOBAL 2 OVERVALUED 2 GOVERNMENT BOND .40 YIELD** (RS) 5
1 1 .35
4
0 0 .30
3 -1 -1 .25
2 -2 UNDERVALUED -2 .20
1 -3 -3 .15
2000 2004 2008 2012 2016 2020 1996 2000 2004 2008 2012 2016 2020 * BASED ON RELATIVE PRICE/BOOK, PRICE/EARNINGS, AND DIVIDEND YIELDS. * IN US DOLLARS. SOURCE: MSCI INC. (SEE COPYRIGHT DECLARATION). SOURCE: MSCI INC. (SEE COPYRIGHT DECLARATION). ** SOURCE: J.P. MORGAN CHASE & CO.
20 Shape Your ConvictionTM
What About All The Debt?
% Of % Of % Of % Of GDP GDP GDP GDP ADVANCED ECONOMIES ADVANCED ECONOMIES GENERAL GOVERNMENT BUDGET BALANCE: GENERAL GOVERNMENT GROSS DEBT: IMF JUNE 2020 PROJECTION 140 IMF JUNE 2020 PROJECTION 140 IMF OCTOBER 2019 PROJECTION IMF OCTOBER 2019 PROJECTION
0 0
120 120
-4 -4
100 100
-8 -8
80 80 -12 -12
60 60 -16 -16
1990 1995 2000 2005 2010 2015 2020 1990 1995 2000 2005 2010 2015 2020 SOURCE: IMF. SOURCE: IMF.
21 Shape Your ConvictionTM
Deflationary Pressures Will Recede
Ann% Ann% Chg Chg
WORLD SUPPORT RATIO*
G7 PRODUCTIVITY* .54 .54
2.0 2.0
.52 .52
1.6 1.6
.50 .50
1.2 1.2
.48 .48
.8 .8
1990 1995 2000 2005 2010 2015 2020 1960 1980 2000 2020 * GDP-PER-HOUR WORKED. SHOWN AS A 5-YEAR MOVING AVERAGE. * NUMBER OF WORKERS RELATIVE TO NUMBER OF CONSUMERS. NUMBER SOURCE: OECD. INCLUDES FORECAST FOR 2019. OF WORKERS INCORPORATES AGE-SPECIFIC VARIATION IN LABOR FORCE PARTICIPATION, UNEMPLOYMENT, HOURS WORKED, AND PRODUCTIVITY. NUMBER OF CONSUMERS INCORPORATES AGE-SPECIFIC VARIATION IN NEEDS OR WANTS BASED ON AGE-SPECIFIC CONSUMPTION DATA. THEY ARE ALSO REFERRED TO AS 'EFFECTIVE WORKERS' AND 'EFFECTIVE CONSUMERS'. SHOWN AS A GDP-WEIGHTED AGGREGATE OF 46 COUNTRIES. SOURCE: NATIONAL TRANSFER ACCOUNTS.
22 Shape Your ConvictionTM
Geopolitical Risks Abound...
% US: % US: WORLD TRADE VOLUME INDEX DIVIDED BY OPINION POLL OPINION POLL INDUSTRIAL PRODUCTION INDEX* 80 PERCENT OF RESPONDENTS WHO HAVE 80 PERCENT OF RESPONDENTS WHO HAVE 1.1 1.1 AN UNFAVORABLE OPINION OF CHINA AN UNFAVORABLE OPINION OF CHINA
1.0 1.0 60 60
.9 .9
40 40 .8 .8
.7 .7
20 20
.6 .6 DEM / LEAN / LEAN REP REP DEGREE NO COLLEGE GRAD+ COLLEGE 18-29 AGES 30-49 AGES 50+ AGES
0 0 1990 1995 2000 2005 2010 2015 2020 SOURCE: SURVEY OF US ADULTS CONDUCTED MARCH 3-29, 2020, "U.S. VIEWS OF CHINASOURCE: SURVEY OF US ADULTS CONDUCTED MARCH 3-29, 2020, "U.S. VIEWS OF CHINA INCREASINGLY NEGATIVE AMID CORONAVIRUS OUTBREAK," PEW RESEARCH CENTER. INCREASINGLY NEGATIVE AMID CORONAVIRUS OUTBREAK," PEW RESEARCH CENTER. * SOURCE: CPB NETHERLANDS BUREAU FOR ECONOMIC POLICY ANALYSIS.
23 Shape Your ConvictionTM
... As Do Domestic Political Risks
Ann% Chg US 12 US 16 HOMICIDE RATE PER 100,000 POPULATION* (LS) HOMICIDE RATE PER 100,000 POPULATION* (LS) CPI INFLATION RATE (RS) 11 CYCLICALLY-ADJUSTED P/E** (RS) 50
45 10 10 12 40 9
35 8 8 8 30
7 25
6 6 4 20
5 15
4 10 4 0
1960 1970 1980 1990 2000 2010 2020 1960 1970 1980 1990 2000 2010 2020 * INCLUDES MURDER AND NONNEGLIGENT MANSLAUGHTER ONLY. * INCLUDES MURDER AND NONNEGLIGENT MANSLAUGHTER ONLY. SOURCE: US BUREAU OF JUSTICE STATISTICS; AND FBI UNIFORM CRIME REPORTING (2018). SOURCE: US BUREAU OF JUSTICE STATISTICS; AND FBI UNIFORM CRIME REPORTING (2018). ** SOURCE: ROBERT SHILLER.
24 Shape Your ConvictionTM
Key Investment Conclusions
• Uncertainty over the course of the pandemic and the looming US fiscal cliff could spook investors, leading to a temporary selloff in equities.
• The selloff will be shortlived since there is little appetite to reintroduce stringent lockdown measures.
• Thus, investors should favor global equities over a 12-month horizon. Non-US stocks should outperform US stocks as the dollar enters a bear market. Value stocks should also outperform growth stocks.
• Bond yields will remain subdued over the next few years, but will start to move higher later this decade as inflation accelerates. The global equity bull market will end at that point.
25 Global Offices Copyright 2020, BCA Research Inc. All rights reserved. The text, images and other materials contained or displayed on any BCA Research Inc. product, service, report, e-mail or web site are proprietary to BCA Research Inc. and constitute valuable intellectual property. No material from any part of any BCA Research Inc. web site may be downloaded, transmitted, Main Office Sydney, Australia broadcast, transferred, assigned, reproduced or in any other way used or otherwise disseminated in any form to any person or entity, without the explicit Montreal, Canada Level 19, 1 O’Connell Street written consent of BCA Research Inc. All unauthorized reproduction or other use of material from BCA Research Inc. shall be deemed willful infringement(s) of 1002 Sherbrooke Street West, Sydney, Australia BCA Research Inc. copyright and other proprietary and intellectual property rights, including but not limited to, rights of privacy. BCA Research Inc. expressly Suite 1600 NSW 2000 reserves all rights in connection with its intellectual property, including without limitation the right to block the transfer of its products and services and/or to track usage thereof, through electronic tracking technology, and all other lawful means, now known or hereafter devised. BCA Research Inc. reserves the right, Montreal, Quebec H3A 3L6 Office +61 02 8249 1867 without further notice, to pursue to the fullest extent allowed by the law any and all criminal and civil remedies for the violation of its rights. Phone +1 800 724 2942 +61 02 8249 1868 +1 514 499 9550 Non-residents of Canada confirm that they do not, and have never had the right to use any of BCA Research Inc.’s materials in Canada, and agree that they have not and never will use any of the materials in Canada unless they acquire this right by paying the applicable Canadian and Quebec sales taxes. All unauthorized Cape Town, South Africa use of the materials in Canada shall be deemed willful infringement of BCA Research Inc. copyright and other proprietary and intellectual property rights. London, United Kingdom 16 Ebenezer Road 8 Bouverie Street The Foundry While BCA will use its reasonable best efforts to provide accurate and informative Information Services to Subscriber, BCA cannot guarantee the accuracy, relevance and/or completeness of the Information Services, or other information used in connection therewith. BCA, its affiliates, shareholders, directors, London, EC4Y 8AX Cape Town, 8000 officers, and employees shall have no liability, contingent or otherwise, for any claims or damages arising in connection with (i) the use by Subscriber of the Phone +44 0 207 556 6008 South Africa Information Services and/or (ii) any errors, omissions or inaccuracies in the Information Services. The Information Services are provided for the benefit of the Office +27 21 276 1927 Subscriber. It is not to be used or otherwise relied on by any other person. New York, United States Mobile +27 83 317 1908 Some of the data contained in this publication may have been obtained from Bloomberg Barclays Indices; Bloomberg Finance L.P.; CBRE Inc.; CEIC data; First 1120 6th Avenue, 6th Floor Bridge Data LLC; Copyright © 2020, IHS Markit; MSCI Inc. Neither MSCI Inc. nor any other party involved in or related to compiling, computing or creating the New York, NY 10036 São Paulo, Brazil MSCI Inc. data makes any express or implied warranties or representations with respect to such data (or the results to be obtained by the use thereof), and all Office +1 212 224 3669 Office +55 11 9828 13005 such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of such data. Without limiting any of the foregoing, in no event shall MSCI Inc., any of its affiliates or any third party involved in or related to compiling, com- West Coast, United States puting or creating the data have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages. No further distribution or dissemination of the MSCI Inc. data is permitted without MSCI Inc.’s express written consent. Real Phone: + 1 210 219 9924 Capital Analytics Inc.; Reis Services LLC; Copyright © 2020, S&P Global Market Intelligence (and its affiliates as applicable). Reproduction of any information, opinions, views, data or material, including ratings (“Content”) in any form is prohibited except with the prior written permission of the relevant party. Such party, Hong Kong its affiliates and suppliers (“Content Providers”) do not guarantee the accuracy, adequacy, completeness, timeliness or availability of any Content and are not 12/F, V-Point responsible for any errors or omissions (negligent or otherwise), regardless of the cause, or for the results obtained from the use of such Content. In no event 18 Tang Lung Street shall Content Providers be liable for any damages, costs, expenses, legal fees, or losses (including lost income or lost profit and opportunity costs) in connection Causeway Bay, Hong Kong with any use of the Content. A reference to a particular investment or security, a rating or any observation concerning an investment that is part of the Content is Office +852 2912 8055 not a recommendation to buy, sell or hold such investment or security, does not address the suitability of an investment or security and should not be relied on as investment advice. Credit ratings are statements of opinions and are not statements of fact; Standard and Poor’s (“S&P”) Copyright © 2020 The McGraw-Hill Companies, Inc., S&P is a division of The McGraw-Hill Companies Inc. All rights reserved; or from Refinitiv, “The Refinitiv Kinesis Logo and Refinitiv are trade- marks of Refinitiv and its affiliated companies in the United States and other countries and used herein under license.” In addition to the foregoing, Client shall display or print the following notice in the Help About section or in a general attribution page. “Copyright ©Thomson Reuters, 2020. All Rights Reserved. Use, duplication, or sale of this service, or data contained herein, except as described in the BCA Research products subscription agreement, is strictly prohibited.”
Important Disclaimer
This communication reflects our analysts’ current opinions and may not be updated as views or information change. Past results do not guarantee future performance. Business and market conditions, laws, regulations, and other factors af-fecting performance all change over time, which could change the status of the information in this publication. Using any graph, chart, formula, model, or other device to assist in making investment decisions presents many difficulties and their effectiveness has significant limitations, including that prior patterns may not repeat themselves and market participants using such devices can impact the market in a way that changes their effectiveness. BCA Research believes no individual graph, chart, formula, model, or other device should be used as the sole basis for any investment decision.
BCA or its affiliated companies or their respective shareholders, directors, officers and/or employees, may have long or short positions in the securities discussed herein and may purchase or sell such securities without notice.
Neither BCA Research nor the author is rendering investment, tax, or legal advice, nor offering individualized advice tailored to any specific portfolio or to any individual’s particular suitability or needs. Investors should seek professional investment, tax, legal, and accounting advice prior to making investment decisions. BCA Research’s publications do not constitute an offer to sell any security, nor a solicitation of an offer to buy any security. They are designed to provide infor- mation, data and analysis believed to be accurate, but they are not guaranteed and are provided “as is” without warranty of any kind, either express or implied. BCA RESEARCH DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE.
BCA Research, its affiliates, officers, or employees, and any third-party data provider shall not have any liability for any loss sustained by anyone who has relied on the information contained in any BCA Research publication, and they shall not be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of the information or opinions contained BCA Research publications even if advised of the possibility of such damages.
Important copyright and other information are available here: https://www.bcaresearch.com/copyright. DISCLOSURES IMPORTANT DISCLOSURE INFORMATION
MainStreet Investment Advisors, LLC (MainStreet Advisors) is an investment adviser registered with the Securities and Exchange Commission and wholly-owned subsidiary of Fifth Third Bank, National Association. Registration as an investment adviser does not imply any level of skill or training. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy, and should not be relied on for accounting, tax or legal advice. This material is not intended to be used as a general guide to investing, or as a source of any specific investment recommendations, and makes no implied or express recommendations concerning the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon the client’s investment objectives. The portfolio risk management process and the process of building efficient portfolios includes an effort to monitor and manage risk, but should not be confused with and does not imply low or no risk.
BCA Research is not affiliated with MainStreet or any of MainStreet’s affiliated companies. MainStreet makes no representations or warranties of any kind regarding BCA Research’s products or services and is not providing a recommendation that any of our clients pursue any opportunity discussed during the webinar. MainStreet clients, at their discretion, may utilize or not utilize BCA Research and, in doing so, may be subject to any agreements, terms, and conditions required by the BCA Research.
NOT A DEPOSIT | NOT FDIC INSURED | MAY LOSE VALUE | NOT BANK GUARANTEED | NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
3 FOR INSTITUTIONAL USE ONLY. NOT FOR PUBLIC DISTRIBUTION