Specializing in retirement planning and personalized investment management.

Managing Reopening Expectations

The Blue Water Team

As COVID-19 vaccinations increase and economic recovery packages pour money into the economy, the economic impact of the pandemic is lessening and the economy is beginning to rebound. In the first quarter of 2021, for example, the GDP grew 6.4 percent year-over-year. 

Economic growth will slow.

Despite promising economic numbers, it is reasonable to assume that this economic growth will slow, or even stop, by the third quarter of this year. Navigating confusing economic signals is important for investors looking to make smart choices for their portfolios. 

Rising inflation rates and interest rates will present obstacles.

The Consumer Price Index increased a concerning 4.2% over the last year. In addition, heavy government aid to offset the economic impacts of the pandemic and higher taxes are leading to confusion about what the future holds for inflation and interest rates. 

Investors who are struggling with these current economic uncertainties should consider three strategies for building their portfolios throughout the rest of 2021. 

Strategy 1: Cyclicals and Europe should take center stage

The economy is set to enjoy a strong recovery, thanks to rising vaccination rates and the reopening of almost every state. With strong stimulus efforts, savings have reached 27.6% of disposable income, with additional stimulus on the horizon. In light of these positive statistics, small cap, large cap, and value stocks are all doing well. In light of this environment, the four sectors of banking, mining, retail, and homebuilding are set to thrive. 

Similarly, Europe has been enjoying a resurgence in economic stability and societal reopening, thanks to the spread of vaccinations and a corresponding dip in new COVID-19 infections. Expected stimulus money should also help to encourage investment and spur economic recovery. These trends set Europe up for ongoing economic growth in the near future. 

In light of these trends, investors may want to embrace investments in cyclical sectors and in European investment opportunities. 

Strategy 2: Focus on bonds not impacted by rising rates

The U.S. 10-year yield is anticipated to grow by a healthy 1.8% by the end of 2021, leading to tapered bond purchases and even higher yields. However, in light of low rates for core bonds, investors may instead wish to select growth-oriented bonds that are less influenced by rising growth rates. High-yield municipal bonds are particularly promising. 

Strategy 3: Focus on Innovation

Transformation and disruptive innovations are changing the current landscape and could lead to long-term growth. This growth is particularly promising because these innovations are broadly-based and therefore less limited than more traditional investments. Investors may wish to pursue these disruptive trends, with diversified portfolios to reduce their risk. 

Check out our list of innovative technology categories.

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