U.S. Equities: The Reopening Impact
AM with a PM
Air Date: March 3, 2021
Hi, this is Jeff Rabinowitz, portfolio manager on the Lord Abbett Durable Growth team.
Title: Equities: Key Factors for the Rest of 2021
Despite the equity market volatility this this past week, there were a number of positive developments as it relates to the economic improvements we have been seeing. I'd say first [that] Covid case counts have been declining at a pretty healthy rate just in the last month or so, which has been quite refreshing to see.
The end of 2020 and early 2021 saw a pretty big spike in case counts, so I think, seeing that begin to come down is encouraging and then secondly, when you combine the decreasing case counts with the vaccine’s supply and distribution continuing to expand, I think that bodes well for the continuing improvement in parts of the economy that have been impacted by Covid. In addition to that, a number of places around the world and here in this country are beginning to see certain restrictions around movement and economic activity begin to, you know move back, being allowed to happen--in other words, emerge from lockdown—so I think that's also healthy for economic improvement.
I'd say, in addition, coming out of these last few quarters, individuals and businesses are getting more familiar, comfortable learning how to get business done and executed and return to certain activities where they feel comfortable. So all these things are combining to really drive a decent economic backdrop for the go forward.
And then, when you layer in what's happening as we sit today and Congress around the next round of economic Covid relief stimulus that's underway, the size of that package is reportedly quite large. It's likely to hit President Biden's desk as early as mid-March so that's going to have a meaningfully positive impact on the economic landscape. And then after that Covid relief package is complete, Congress is planning to begin an effort around an infrastructure bill, [which is going to provide further boost and stimulus to certain parts of the economy from that package.
Title: Equities: A Look at Recent Market Action
So there's a lot of reasons for optimism, so you might ask why would the market pull back in this past week? The reality is it's being driven by you know it could be a number of factors, but I would particularly point to the increases you've seen an interest rates and inflation expectations of late. And my best explanation of why that's logical and why it makes sense—there are a number of potential factors—but I would say, particularly for those companies that are higher growth where valuations are high, quite often in those areas the cash flows and driver of the valuations really in the tail [Tail refers to earnings expected over a long-term horizon when calculating security valuations.] might be the cash flows earnings from 2025 or 2030 that are driving how people are valuing today, and when valuations are on the more elevated side and you see rates begin to rise, the discount rate [Discount rate refers to the interest rate used in discounted cash flow (DCF) analysis to determine the present value of future cash flows for an equity security.] comes up and you do see a healthy kind of correction happened in some of the higher growth names. In the past week we've seen some of the higher growth names come down 10% or more, in some cases, and I think that level of correction is often viewed as pretty healthy and normal in a positive backdrop for equity markets, and I think with the improvements we're seeing in the economy, with the stimulus the infrastructure bill the reopening that's underway, we remain upbeat about the equity market going forward.
Thank you for listening. And thank you for your continued interest in Lord Abbett.________________________________________
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