The COVID-19 challenge severely tested global markets in 2020. Aided by unprecedented monetary and fiscal stimulus, markets responded with surprising resiliency. As we move into 2021, however, we expect markets will face another major test.
Macroeconomic Outlook: As the Pandemic Surges, Global Economies Will Be Tested Anew
The resilience of global markets will be retested in 2021. We expect the United States and China to outperform in the year ahead.
Central Bank Action Will Support Investment Grade Credit
Proactive central bank efforts will continue to be a substantial factor in 2021, translating to a favorable outlook for investment grade credit. Local-currency EM debt will also present a compelling opportunity; China warrants particular attention.
Growth and Quality Assets Are Most Likely to Deliver on Earnings
We favor equities compared with other asset classes – but earnings must come through. We believe growth and quality assets, which tend to be concentrated in the United States and in China, are most likely to deliver on earnings in the coming year.
As investment challenges grow more complex, State Street’s Global Market Outlook was created to alert investors to portfolio risks and opportunities in the coming year, based on the research of our investment teams. Research on near-term and longer-term market issues is at the heart of who we are as investors. It drives the kinds of outcome-oriented portfolios we create for clients, drawing on the full range of our indexed and active solutions, as well as our asset allocation expertise.
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Equity securities may fluctuate in value in response to the activities of individual companies and general market and economic conditions.
Bonds generally present less short-term risk and volatility than stocks, but contain interest rate risk (as interest rates raise, bond prices usually fall); issuer default risk; issuer credit risk; liquidity risk; and inflation risk. These effects are usually pronounced for longer-term securities. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss.
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