AGF CEO weighs in on equities' continued strength, and how the growth playbook today differs from 2020
Despite the arrival of a new COVID-19 variant and case counts rising once again in the U.S. and elsewhere, many stock markets across the world are carrying on with their advances – though that doesn’t necessarily mean investors should keep calm.
In a new commentary, AGF Investments CEO and chief investment officer Kevin McCreadie explained that factors such as decreased prospects of extreme economic lockdowns, vaccine rollouts, and a positive earnings season are contributing to the continued buoyancy in investors’ mood. The notion that the U.S. Federal Reserve will cool the euphoria with rate hikes, or that its bond-buying program is a fait accompli, are also far from certain at this point in the recovery.
“Still, it’s not like investors are completely ignoring the risks at hand,” McCreadie said.
While the S&P 500 has consistently hit new highs over the past two months, the S&P 500 Growth Index has ascended by nearly 15% since mid-May; the Nasdaq 100, which is littered with growth-oriented large-cap tech companies, has also gone up almost 16%. In contrast, the S&P 500 Value Index is up by just over 1% during the same period.
“In other words, the style of investing that tends to do well in a backdrop of slowing economic growth is now surging, while the style most synonymous with the early stages of a new economic cycle is waning,” he said.
While the bias in today’s markets may echo the pro-growth playbook from the post-March 2020 rally, McCreadie said the backdrop this time is quite different. Companies are feeling things out as they weigh the pros and cons of returning to work against adopting a “hybrid” arrangement for employees, and investors are on tenterhooks anticipating the end of ultra-accommodative fiscal and monetary policies.
“There was nothing quite as harrowing as what investors went through in 2020, especially in the spring when stocks collapsed, but in my opinion the nature of the risks today may end up being significant,” he said.
That’s not to say a drop in the stock markets is a sure thing; a rise in equity markets is still possible, though McCreadie argued any future ascent will likely be much more volatile that what’s occurred in recent months. Going into the fall, investors will look to get a handle on on the firmness of the labour market, what “normal” means post-pandemic, how to best adjust to COVID-19 variants, and whether booster shots can help keep the economic engine turning.
