-President-elect Biden is faced with continued COVID challenges
-Poor jobs report for December and unemployment numbers remain high
-Concerns on inflation and bullish on the stock market
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With over 4,000 daily COVID deaths in the U.S., one of the biggest hurdles for President-Elect Biden’s administration will be to figure out how to distribute vaccines more effectively.
Johnson and Johnson’s vaccine is awaiting FDA approval. If it is approved, it will be the first vaccine that needs only one shot, and it is much easier to store and transport. The hope is that as more vaccines can quickly come to market, more of the vulnerable population will be vaccinated, and the economy will be able to recover faster.
Jobs and Unemployment
The most recent jobs report showed that the economy lost 140,000 jobs in December. This marks the first time in 7 months that there wasn’t an increase.
As for weekly unemployment numbers, they have remained elevated this year, with the week ending in Jan 9th jumping to 965,000 initial claims. The median forecast from a Bloomberg survey of economists called for 789,000 claims.
We will likely stay in this new paradigm for quite some time. 2021 should be a year filled with corporate bankruptcies and corporate restructuring, which will not be good for white-collar workers. Along with the continued digitization of services, we expect there to be even more of a strain on employment numbers. The replacement of human jobs with software has accelerated and is here to stay. An interesting stat about tech companies is that they employ about 2% of the workforce while making up over 30% of the stock market.
Inflation has been a large topic of discussion lately. In 2020 we saw a weakened dollar and higher commodity prices.
This makes sense, as the Fed is printing an unprecedented amount of money. The Fed has also signaled its willingness to let inflation run hot. In fact, the Fed may let inflation run hot for a few years before stepping in.
Interest rates such as the 10-year U.S. government bond have been on the rise, likely due to inflation concerns. We believe interest rates could rise further as inflation concerns continue, and we’re keeping an eye on the Consumer Price Index (CPI) for the first half of 2021.
Once rates get out of control in the Fed’s eyes, which may be around 1.5% - 2% on the 10-year, they will likely enact yield curve control.
Stocks still look attractive.
The Fed’s money printing and low-interest-rate policy justify higher valuations for stocks. Additionally, on a relative basis, many other markets are much more overvalued, such as the corporate bond market.
We especially like the stocks of companies that can grow their revenues faster than the average U.S. company, and this is an environment where paying up for growth is worth it.
We’re looking towards this year and the changes that it will bring. Even as the population becomes vaccinated, it will take time to get back to normal—if things even will ever get back to normal.
While some industries have been decimated, others have just accelerated down a path that was already paved for them. We believe that this year is the year to be extremely picky regarding investments. Specific industries and asset classes will continue to thrive, and others will continue to flounder.
Below are the asset classes we like or have a close eye on, and the reason why:
Tech Stocks – Revenue Growth
Stock Markets in Asian - Economic Growth
Real Assets – Inflation
Bank Loans – Relative Value
Securitized Fixed Income – Relative Value
See you soon,
The Round Team
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