Economic data over the last few weeks has shown that the “V-shaped” recoveries the world’s economies once aspired to are bent out of shape…
? RECAP
- Data out in August showed UK retail sales falling at their fastest rate since January.
- Chinese manufacturing activity, meanwhile, shrank for the first time since April 2020 last month.
- And even though US stocks hit a record high this month, analysts have been reducing their forecasts for third-quarter economic growth.
- The US tied things up by revealing it had added far fewer jobs than expected last month.
✍️ CONNECTING THE DOTS
Investors had been hoping that widespread vaccine rollouts in developed markets would lead to a reopening of non-essential stores and leisure locations, and help unleash the trillions of dollars that consumers saved during the pandemic. That much was clear from optimistic economic forecasts and company earnings growth projections, with the second quarter of this year expected to boast the highest profit growth on record.
But there have been some bumps in the road since then, largely because of the Delta variant – thought to be even more deadly than its world-shuttering forefather. And even though investors were crossing their fingers that it wouldn’t derail the recovery too much, that hasn’t quite been the case. Take the US: the country’s August jobs report is a case in point of both demand and supply going in a negative direction. More people stayed home in order to stay safe. That drop in demand led to bosses putting hiring on hold, while those who did keep jobs open may have struggled to fill them as potential employees held off accepting jobs to keep safe.
China’s having its own problems: resurgent coronavirus cases have been contributing to its weak economic data lately. That poses a risk to global supply chains, given that so many of the products and widgets the world relies on are “made in China”. That’ll probably mean global economic growth comes in lower than expected, and earnings growth falls short of predictions – a one-two punch that could send stocks tumbling.
? TAKEAWAYS
- The most popular themes should keep you warm.
Bloomberg asked professional investors where they’re investing, and they suggested sticking to thematic plays that stand to benefit no matter what happens with coronavirus in the short term.1 One example is healthcare services companies that are focused on delivering convenience, and healthcare service insurance companies: wealth manager Chilton Trust reckons UnitedHealth Group and CVS fit the bill to name just two, while iShares U.S. Healthcare Providers ETF offers broader exposure to the theme. Another example is clean energy: under-the-radar companies like MYR Group, MasTec, and Quanta Services are all set to benefit when the US rebuilds its energy grid, and so might the exchange-traded fund First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index.
- Europe might be the best of a bad bunch.
The European Central Bank announced on Thursday that it’s planning to slow down its bond-buying program, suggesting that the region’s recovering from the pandemic at least as well as the central bank was hoping. And since the US seems to be on the back-foot, you might want to buy European stocks likely to benefit from a full reopening – however gradual that might be.2
? ALSO ON OUR RADAR
Research last week confirmed what plenty of investors already knew: investment funds have been rebranding themselves as green, impact, or ESG-focused in name rather than in action. That highlights the importance of digging into funds to understand how they define these concepts, and whether their definition lines up with yours.3
