Natixis Investment Institute reported Wednesday that investment experts across the firm were relatively upbeat in their economic outlook, but expected a full recovery to take awhile following the quickest and sharpest selloff and the fastest rebound in history.
The report was based on the findings of 36 strategists, economists and portfolio managers who represent Natixis Investment Managers, 14 of its affiliated asset managers and Natixis Corporate & Investment Banking.
Road to Recovery
Natixis found that 47% of respondents anticipate a rally and 53% expect a selloff in the remaining months of 2020. A third of respondents see a W-shaped recovery — an expectation shared by respondents in both groups.
What this comes down to is that 44% believe that although recovery is underway, it is likely to stall. A mere 2.8% of strategists expect the economy to recover as swiftly as the stock market did.
The coronavirus is the strategists’ top-of-mind market risk, with 86% giving COVID-19 a risk rating “above 5″ on a 10-point scale for an average risk rank of 7.5.
At the same time, however, they anticipate political and geopolitical risks. Eighty-six percent ranked U.S.-China relations above 5, as did 75% global trade and 66% the November U.S. election.
Many are also concerned about the current stalemate in the U.S. Congress. Three in five put the risk above 5, and a third pushed it above 7.
In contrast, strategists gave foreign interference in the November elections an average risk rating of 3.5.
“We know investors are bearish on fundamentals,” Jack Janasiewicz, portfolio manager and strategist at Natixis Investment Managers, said in a statement. “And plenty are questioning the sustainability of the rally, making the technicals bullish, which is why the ‘pain trade’ is for the market to grind higher.”
The November U.S. presidential election looms large in strategists’ thinking.
Seventy-eight percent of respondents projected that Democratic nominee Joe Biden would win the election, but were concerned about how the American public would receive any result.
Half of respondents said they expected the outcome to be contested regardless of the winner, and half predicted that it would result in social unrest.
Three-quarters of participants believed that a Biden election victory would be better for global trade, and a similar number said the same of geopolitical risk. And three in five gave the advantage to the Democratic Party on the global economy.
Despite their confidence in a Biden win, 58% of strategists believe that a Trump reelection would be better for equities, given prospects for lower corporate taxes and a pro-business perception correlated with the incumbent.
Strategists had little to say about bonds. According to Natixis, this likely reflects the U.S. Federal Reserve’s might and a view that rates will be even lower for longer, regardless of who sits in the Oval Office.
Sector Winners and Losers
The winner is … technology, by unanimous acclaim of strategists. Similarly, 94% expect health care to become an even stronger sector for policymakers going forward, and 91% say the same of stay-at-home businesses.
Natixis said these three sectors were a clear representation that the pandemic will accelerate recent changes.
Most surprising, according to Natixis, is what the pandemic reveals about the resiliency of environmental, social and governance investing.
With ESG investment strategies proving mainly defensive during the first half, interest in ESG investing has grown robustly, making it a winner for 91% of strategists. Seventy-five percent of these said they believed that that ESG investing would become more prominent and mainstream as a result of this crisis.
And the losers?
Eighty-five percent of strategists cited traditional entertainment and 83% travel, as millions of Americans stay home and a slow economic recovery is expected.
Another likely loser is energy, which has experienced unique challenges since the first quarter, cited by 77% of respondents.
Respondents’ sentiment about real estate see-sawed between positive and negative trends. Two-thirds of strategists gave the housing sector a thumbs-up as they watched city dwellers head to less densely populated suburbs.
But 94% saw commercial real estate as a big loser, given the work-from-home trend and the shift to online retail that made tech the going-away winner in the pandemic market.
“Looking ahead, we’ve identified global retirement security as a longer-term issue that could be compromised as a result of the COVID public health crisis and subsequent market crisis,” Dave Goodsell, executive director of the Natixis Center for Investor Insight, said in the statement.
“Whether you look at retirees trying to generate income, pensions working to meet liabilities, or policy makers struggling with funding decisions, low rates and high levels of debt could create higher than normal risks for those seeking retirement security.”
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