Investment Strategies for a Booster-Shot Recovery

Our Fixed Income CIO Sonal Desai shares her investment views and strategies for the post-pandemic recovery. She explains why inflation looks likely to gain steam, and how the balance of fundamentals and valuations become especially crucial today when looking for attractive returns in fixed income. The Franklin Templeton-Gallup Economics of Recovery Study supports her bullish view for the global economy, and highlights how policymakers need to intensify their efforts to boost vaccine acceptance.

Investment strategies have dominated media headlines in recent days, with a twist: it’s all been about social media-driven individual investments in stocks unloved—and shorted—by some major hedge funds. The story has raised strong passions on different sides of the debate: some have seen it as a poetic revenge of “the little guy” against “Wall Street;” some as another dangerous example of mob behavior in the age of social media; and some as simply a manifestation of new dynamics in a financial market where direct individual investment has come to play a bigger role.

But whichever way you look at it, like every discussion on investment strategies, this one also boils down to weighing valuations and fundamentals. And whether you are looking at equities or fixed income assets, for me the starting point must always be an assessment of the overall macro fundamentals. As I have argued in the recent Barron’s 2021 Roundtable, I maintain a bullish view on this year’s economic outlook, especially for the United States. A view informed and supported by the insights we gleaned from our just completed, months-long Franklin Templeton–Gallup Economics of Recovery Study.

Vaccines’ Booster Shot to the Recovery

Our study showed that a COVID-19 vaccine would be the single most important factor in giving people confidence to resume normal spending habits.1 Now several vaccines have received emergency approval and their efficacy is higher than was hoped for. Supply chains and distribution are experiencing teething pains, but we’ll surmount them. The key thing is: we now have a vaccine. Moreover, the trend in new cases in the United States had already started to improve considerably at the turn of the year, providing an additional tailwind.

As vaccination programs build momentum, they will pave the way for a broader reopening of economic activity. And in 2020, we have seen that the economy is in strong enough health to bounce back quickly as restrictions on business activities are lifted.