Reflation & Inflation: First Quarter 2021 Investment Commentary

Global stock markets celebrated the one-year anniversary of the pandemic-induced bear market low (from late March 2020) with another strong quarter of returns. The first quarter also saw a continuation of the “reflation rotation” trend that has been happening beneath the market surface over the past several months. And while we believe the most likely scenario over the next year at least is a reflationary one, many investors are wondering if inflation will be a threat anytime soon. Chief Investment Officer Jeremy DeGroot addresses this question and discusses the ways in which broad market trends impacted portfolios.

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Year-End 2020 Investment Commentary

The likelihood of widespread vaccine distribution supports the case for a cyclical economic recovery beginning in the second and third quarter of 2021. Central bank monetary policy is almost certain to remain very accommodative for at least the next year or two. And fiscal policy is unlikely to be restrictive and could be stimulative, depending on political outcomes. This macro backdrop should be supportive of equities and other financial risk assets, at least for the next year. Over our five-year tactical horizon, we continue to favor emerging-market stocks over U.S. stocks and flexible bond strategies over core bonds. There are always risks to our outlook: the virus and extreme investor optimism in the short term, inflation and China longer term. But overall, there are reasons for optimism for our society, economies, and markets in the year ahead.

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