With vaccine rollouts having such great success in the US, it is time to start thinking about going back to life as it was, as we regain a sense of normalcy. This means starting to think about investing post-pandemic. What trends should we be watching? Will tech continue to lead the way? What are the potential risks? These are just a few of the questions we will try to answer today.
Monetary and Fiscal stimulus to the rescue
The fed and the US Treasury teamed up for unprecedented stimulus projected to be around $5 Trillion. While this union was noteworthy, it was nothing new as these entities have coordinated efforts in the past to combat economic downturns.
During 2020’s downturn, the Fed injected large amounts of liquidity and lowered interest rates to near zero. This allowed firms to avoid potential solvency issues and borrow low-cost capital to accelerate growth.
These policies led to a large increase in capital expenditures towards information technology infrastructure.
The digitization of the economy is accelerating
The pandemic accelerated technology trends that were already in place, but that will have broad and long-lasting economic implications, including:
- A greater shift to ecommerce
- A transition of online entertainment from cable to streaming services
- Adoption of machine learning and artificial intelligence
- Wider acceptance of disruptive workplace trends such as teleconferencing/remote work
The chart above demonstrates a shift in consumer behavior from brick-and-mortar retail to e-commerce. This shift is one that will likely persist which could help larger tech firms with vast repositories of data and intellectual property drive greater earnings growth and efficiencies. This trend is something to watch when evaluating post-pandemic stocks.
The aggressive fiscal and monetary stimulus could lead to some overheating. Higher inflation and the devaluation of the US dollar are something investors are watching. This could lead to interest rates rising faster than expected thus reversing the push towards higher growth as borrowing becomes more expensive.
The current proposal to raise corporate taxes could also hinder growth. Higher taxes could reduce firms expected revues and decrease the willingness for capex investment.
It is also important to remember that while technology stocks are a substantial part of the economic ecosystem they are also regular targets for regulation and consolidation. Investors need to be mindful about the potential for antitrust enforcement and high valuations when looking at post-pandemic stocks.
Growth of “Feel-Good” Investing
Environmental, social, and corporate governance (ESG) investing saw an exponential rise during the pandemic. Since January 2020, ESG funds have received $215 billion net inflows from mutual fund investors globally.
ESG investing seems to be becoming a staple among investors. It is important that you do your research into these “ESG” funs to understand exactly what you are investing in.
While the market continues to see all -time highs as the success of vaccines lead to economic reopening’s, it is important to remain vigilant. Investing post-pandemic will bring with it its own set of challenges and trends.
If you would like to discuss a long-term plan for your investments feel free to give us a call at 610-825-3540.