- As we enter the recovery phase, the US equity team is working closely with our Fundamental Research team to analyse two major themes that will drive our sector positioning and stock picks over the coming months.
- The first is consumer spending. Household balance sheets are in much better shape than they have been emerging from previous recessions, but the pattern of consumer spending that we see in 2021 will be different to the pre-pandemic trend. The “experience economy”, which emerged strongly in the decade from 2010, will exhibit the strongest growth. This means tourism, out-of-home entertainment and leisure spending will benefit. But a significant proportion of business travel – perhaps as much as 50% – will not return.
- Our second theme is how changes in corporate costs will feed into increased operational leverage and improved profitability as revenues rebound. We will be looking to identify those that have succeeded in permanently reducing their operating costs during the pandemic.
- A Joe Biden presidency, but with a divided government, could be positive for utilities (where the push towards generating cleaner power is likely to continue and should benefit regulated companies), real estate, consumer staples and materials. But the outlook is arguably weaker for healthcare, energy and financials, where the likelihood of higher corporate taxes is now lower, which would be a positive for the sector, but the odds of new, more stringent regulatory initiatives may act as a drag.
With the prospect of early access to effective vaccines getting steadily stronger, the major question for investors in US equity markets is how to position their portfolios for an economy returning to normal after the Covid-19 shock?
The US consumer
One to watch: operational leverage
Our research does indicate that there will be clear sector winners and losers in a Biden presidency. For example, among the winners will likely be utilities, where the push towards generating cleaner power is likely to continue and
should benefit regulated companies in this sector. Divided government creates a more challenging path for tax reform, but even with lower rises in the corporate tax rate, regulated utilities can pass the costs on to customers.
We also see winners in the consumer staples, real estate and tech sectors, but are not as bullish on healthcare, utilities and financials where, in the case of the latter, the picture is somewhat mixed. The likelihood of higher corporate taxes has decreased, which would be a positive for the sector, but the odds of new, more stringent regulatory initiatives may act as a drag.
We would therefore caution against a rush to value and poorly performing stocks irrespective of the outlook, and would also caution investors about value traps.
Instead, we expect this environment will favour the type of investments that Columbia Threadneedle Investments makes – long-duration assets and durable growth companies that keep