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7 lessons for today’s investors

What the global response to the pandemic can tell us about the road ahead – and where to find possible emerging opportunities

November 10, 2021

 “ONE OF THE BIGGEST TAKEAWAYS of the pandemic may be how resilient the markets and economy have been,” says Chris Hyzy, Chief Investment Officer, Merrill and Bank of America Private Bank. “Thanks to massive government stimulus and rapid development of effective vaccines, the economy today is strong and the S&P 500 has surpassed pre-pandemic highs by more than 30%.”1

Yet the pandemic has also underscored our vulnerabilities and left us with some valuable lessons for moving forward, Hyzy adds. Here, Hyzy and Kirsten Cabacungan, Investment Strategist for the Chief Investment Office, Merrill and Bank of America Private Bank, look at how those lessons are reshaping the U.S. and global economies and what opportunities they may create for investors. For a deeper look, see Cabacungan’s recent Chief Investment Office report, “The Book of Greats: Lessons Learned and the Path Ahead.”

“Portfolios in the coming years should allocate more capital to assets backed or underpinned by environmental, social and governance considerations.”

Chris Hyzy, Chief Investment Officer, Merrill and Bank of America Private Bank

Lesson 1: Green is good

Pandemic shutdowns temporarily reduced carbon emissions, highlighting the role that society plays in climate change – and the power we have to ameliorate it. “Beyond extreme weather, climate change can displace communities, degrade infrastructure and threaten food and water security, biodiversity and ecosystems,” Cabacungan says.

Fortunately, the world is coalescing around the need for change. At the 2021 U.N. climate summit in Scotland, for example, more than 100 nations pledged to halt deforestation and slash methane emissions by 2030.2 The drive to bring sustainability to our planet creates investment opportunities in areas such as renewable energy, electrical vehicles, next-generation batteries, clean technology and energy-efficient electronics and building systems, Hyzy notes.

Lesson 2: Crises accelerate global trends

From remote work to e-commerce to telemedicine, “the pandemic taught us a lot about resourcefulness and adaptability,” Cabacungan says. Technologies that might have otherwise needed years for full adoption have gone mainstream and are primed to accelerate. “Beneficiaries include robotics, artificial intelligence, 5G and internet-of-things infrastructure, cloud computing, e-commerce platforms and cybersecurity,” Hyzy says.

Lesson 3: Government policy can be transformative

“The pandemic marked the beginning of a new and unprecedented policy era,” Cabacungan notes. Decisive fiscal and monetary stimulus, in the United States and globally, helped stabilize markets and paved the way for extended economic growth. Proposed government infrastructure spending could spur further growth and create investment opportunities, says Hyzy. Equities should outperform fixed income for the foreseeable future, he believes.

Yet stimulus spending has risks, including contributing to potential extended inflation. On November 3, the Federal Reserve announced plans to begin tapering its massive bond-purchasing program.3 Investors should keep an eye on economic conditions as they evolve, Hyzy suggests.

“Large firms were better positioned to weather pandemic shutdowns and will likely prove more resilient as the speed of technological change accelerates.”

Kirsten Cabacungan, Investment Strategist, Chief Investment Office, Merrill and Bank of America Private Bank

Lesson 4: U.S.-China rivalry will shape markets for years to come

“The U.S.-China relationship, once marked by cooperation, has turned a decisive corner towards rivalry and tension,” Cabacungan says. While this adds to potential political and economic volatility, greater competition could spur new waves of U.S. innovation. Promising areas include biotechnology, electric vehicles, digital media and Internet retail, among others, Hyzy says.  “Defense-related areas, including next-generation military equipment and cybersecurity, could also benefit.”

Lesson 5: Strong balance sheets matter

“Large firms were better positioned to weather pandemic shutdowns and shifts in consumer preferences,” Cabacungan says. With sizeable cash reserves and strong balance sheets, “these companies will likely prove more resilient as the speed of technological change accelerates,” she believes. Thus, large, U.S.-based equities are a fundamental part of any well-diversified portfolio, Hyzy adds. At the same time, smaller companies can remain a dynamic source of new ideas and warrant investors’ consideration within a diversified portfolio.

Lesson 6: Stakeholder capitalism is here to stay

At the heart of stakeholder capitalism is the idea that companies must support an array of constituents beyond shareholders: employees, customers, third-party suppliers, local communities and governments. The pandemic – as well as our heightened awareness of climate change, and of social and economic inequality – has highlighted the role businesses need to play in solving global problems. “They are being pushed to address social and sustainability issues with the same focus as their approach to profits and corporate efficiency,” Cabacungan notes.  

Growing evidence suggests that stakeholder capitalism, in addition to benefiting society, helps create stronger companies, Hyzy adds. “Portfolios in the coming years should allocate more capital to assets backed or underpinned by environmental, social and governance (ESG) considerations.”

Lesson 7: Smart investors stay the course

The following statistic illustrates one of the biggest investing lessons of the pandemic: “An investor who missed the 10 best market days from the start of 2020 through September 2021 would have been down 24%, but by staying invested the same investor would have seen a 33% gain,”4 Cabacungan says. Periodic volatility is likely to continue, Hyzy notes. “Investors should adhere to a disciplined investment process with diversified assets built around their personal goals.” 

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