Our outlook

Weekly View - Act big

The CIO’s view of the week ahead.

César Pérez Ruiz, Head of Investments & CIO, Pictet Wealth Management

Weekly View - Act big

President Joe Biden swiftly got to work following his inauguration last week, signing over a dozen executive actions. In addition to enacting a raft of covid-related measures, the 46th president committed the US to re-joining the World Health Organization and Paris Climate Agreement. He also signed orders aimed at providing economic relief to those Americans hardest hit by the pandemic. Meanwhile, former Federal Reserve chairman and Biden’s nominee for Treasury Secretary, Janet Yellen, urged US lawmakers to ignore the debt burden and “act big” on covid relief spending. Such measures would be good for the economy but risk being offset by any new lockdown measures as the virus rages on. Our responsible investment focus should benefit from the green emphasis of such government spending measures. In the same confirmation hearing testimony, Yellen made strong statements on China, labelling it the US’s “most important strategic competitor” and guilty of “abusive, unfair and illegal practices.” This reinforces our assumptions that China-US tensions will remain a theme throughout the new administration’s tenure. Market volatility will likely remain elevated and we will opportunistically trade it as an asset class.

Business activity in the UK and euro area fell off sharply for the third consecutive month as lockdowns were tightened and extended across the continent. A double-dip recession could lie ahead, putting our Q1 economic forecasts at risk. In Italy, prime minister Giuseppe Conte managed to survive a vote of confidence but lost his coalition’s working majority. This will prove challenging as Italy confronts simultaneous covid and economic crises despite averting immediate political crisis.

The US Q4 earnings season is in full swing. So far on an aggregate level, sales have beat expectations by 7.5% and profits by a noteworthy 32.2%. These figures are largely driven by the financial sector, which is most advanced in its reporting season and has surprised on the upside by 8% for sales and 55% for profits. The number of companies that have reported in other sectors is too small yet to draw any conclusions. Likewise, Europe’s reporting season is still in its early days. As the global economy begins to recover, so should earnings, which will benefit cyclical sectors and innovative small caps that have managed to maintain strong balance sheets.

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