The bigger picture should sound familiar. Beyond the usual suspects, like infection rates, inflation rates, and a steady stream of new forecasts, we find the odd particularity, like disappointing sales figures from Amazon. The closer you look, the more possibly relevant factors you will find. It's like the fractal nature of the Norwegian coastline; if you want to measure its length, a closer inspection will yield a much higher number.
Some more general conclusions still hold: With the retreat of the pandemic, the global economy will get a strong rebound, fuelled by expansionary fiscal and monetary policies, as well as pent-up consumer demand. In Europe, the Nordic countries will lead the pack (as they already do).
Part of the stimulus may end up inflating consumer prices rather than lifting growth, but growth will nevertheless be strong. The frantic search for meaning in the relentless stream of new indicators is basically an attempt to determine just when the really big boost will come, how strong it will be and what counterforces – in particular higher interest rates – we will see.
In my opinion, precision in this endeavour is futile. The best analysis based on July's set of existing information may be rendered totally useless by new information in August. The bigger picture is intact, though. GDP growth will most certainly bounce back (to the extent that it isn't already doing so).
Reports of setbacks in the fight against the pandemic have not abated, and I'm sure you've read comments pinning weaker trading days on news like this. Let me then point out that a slower, more protracted rebound may not be all that bad. It may keep stimuli coming, it may keep interest rates low for a longer time, it may prevent the worst spikes in inflation, thus averting a possible panic reaction to an overdrawn bull market that suddenly appears to be, well, overdrawn.
No, I'm not predicting a Goldilocks scenario. This is closer to being a description than a prediction. Looking at the present pricing of equities and (to a lesser extent) the credit premiums for corporate bonds, not to mention the appreciation we have seen over the past 16 months, wouldn't you say that the essential market movers have been balanced in a rather benign way?
While the pandemic has turned out to be disappointingly resilient, markets have kept delivering returns not seen very often in the annals of capitalism – and still do, at least in equities, where especially the Swedish market had a wonderful July.
So, as far as your investments go, don't weep for delays in fighting the pandemic. For all other reasons, of course, please do.
Finn Øystein Bergh
Chief Economist & Strategist
Historical returns are no guarantee for future returns. Future returns will depend, inter alia, on, market developments, the portfolio manager’s skill, the fund’s risk profile, as well as fees for subscription, management and redemption. Returns may become negative as a result of negative price developments. This is marketing communication.