In our 2021 outlook, we anticipated that COVID-19 vaccinations and sustained fiscal and monetary policy support would drive a strong economic expansion. Now, the recovery is well underway. Global mobility is improving, consumer spending is on the rise, and estimates of economic and corporate earnings growth are accelerating. This is particularly true in the United States where analysts’ expectations have been consistently revised higher since the start of the year – the strongest in three decades.

These revisions to growth have supported ever higher risk asset prices. With leading economic indicators peaking and sustained upside surprises less likely, investors must search for new sources of return beyond the profit recovery. At the same time, the unprecedented nature of the pandemic has created new risks and has made tracking those risks less straightforward.

We believe that the cyclical reflation has more room to run. Peaking economic growth need not cede to a sustained downward trend just yet. But the “easy” part of the cycle may now be over; a rising tide may no longer raise all ships.

Based on our views, we believe the following takeaways are key for investors:

In the near term, the greatest risk for investors is the potential for more durable inflation. Price pressures impact household and business balance sheets, as well as the trajectory of monetary policy, which has been an important support for markets. Our base case perspective is that inflationary pressures firm only modestly from here, and that long-term bond yields, while likely to move higher in the near-term, are unlikely to face a permanently higher regime. However, given the uncertainties around, and importance of this dynamic, we offer alternative scenarios and thoughts for asset allocation.

Complicating the story for investors is the potential extension of a decade-long “lower for longer” rate environment. This secular decline in yields has served both to reduce future return expectation on traditional fixed income assets and render it difficult to generate portfolio income on a meaningful basis. In public markets, this means leaning more on yield-focused equity and a global allocation to generate income in a portfolio. In private markets, this means working with seasoned investors who can harness business risk premium in a highly competitive market.

Amid these risks and uncertainties, our view is that investors must consider both tails – balancing the “hot,” volatile near-term environment with a likely lower-return, long-term future. In public markets, this means a tactical allocation to themes that benefit from an improving economic backdrop – value and cyclical sectors, infrastructure investments, and bond strategies that can leverage rates volatility and global opportunity. In private markets, it is essential to work with seasoned managers who have experience across multiple cycles and can leverage multiple levers of value creation – operational expertise, pricing power, and deal access. 


All investments are subject to risk including loss of principal.

The opinions expressed are those of the Multi-Asset Solutions team, an investment team within New York Life Investment Management LLC and not necessarily those of other investment boutiques affiliated with New York Life Investments.

This material represents an assessment of the market environment as at a specific date; is subject to change; and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding any funds or any particular issuer/security.

The strategies discussed are strictly for illustrative and educational purposes and are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. There is no guarantee that any strategies discussed will be effective.

Any forward-looking statements are based on a number of assumptions concerning future events and although we believe the sources used are reliable, the information contained in these materials has not been independently verified and its accuracy is not guaranteed. In addition, there is no guarantee that market expectations will be achieved.

This material contains general information only and does not take into account an individual’s financial circumstances. This information should not be relied upon as a primary basis for an investment decision. Rather, an assessment should be made as to whether the information is appropriate in individual circumstances and consideration should be given to talking to a financial advisor before making an investment decision.

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