5 Key Investment Themes for 2021 and Beyond

The events which shaped 2020 have had broad and very personal impacts on all of us. However, with 2020 now in the rear-view, and investor sentiment improving, thanks in large part to the rapid progression of COVID-19 vaccines and treatments, we may finally be able to look forward to calmer days ahead.

The market's resilience in the face of a struggling global economy may be one of the more surprising outcomes to emerge from the volatility in 2020. Despite the prevailing confluence of headwinds that continue to cast doubt on the sustainability of the recovery, markets have demonstrated the uncanny ability to peer into the more distant horizon, and shrug aside any immediate perils.

Against this backdrop, the TD Wealth Asset Allocation Committee (WAAC or "we") has released its annual Market Outlook: The Year Ahead, which helps provide balanced insights that consider some of the headwinds and bright spots markets may face in 2021 and beyond.

The article provides great insights into what has led us to today, and what can be expected in 2021 including views on the various asset classes. The outlook focuses on 5 key factors we expect to sustain the economic recovery, and why we are optimistic about 2021 and beyond. These factors include:

• Strength in numbers - The strength in global Purchasing Managers Index (PMI) data has provided evidence that the recovery remains on a firm trajectory and that demand is returning to more normalized conditions to fill the output gap. We have also seen a gradual uptick in North American employment data. This combined with healthy consumer spending, and strong housing markets, is further evidence that many sectors of the economy are rebounding.
• The return to corporate profitably growth – In 2021 S&P 500 Index companies are expected to deliver earning growth of about 22% year-on-year (YoY). This compared to a decline of 7% in 2020 translated well for the economy, as strong corporate heath is key for long-term economic growth.
• Effective and aggressive policy action – A continuation of coordinated policy efforts to help combat the longer-term impacts of the COVID-19 pandemic is expected.
• Vaccines – Hope that vaccines will be the game changer of 2021, as well as the great performance equalizer for the many businesses and individuals that were left behind in 2020.
• Markets react positively to U.S. Presidential Election outcome - Markets responded positively to a Joe Biden presidency. There is also optimism around the potential for a pivot back to a more multilateral approach to U.S. foreign policy when engaging with the international community.

In a nutshell
The WAAC expects economic growth to be modestly positive in 2021. Unlike the Global Financial Crisis of 2008/2009, we do not expect governments to dial back expenditures, as such, both monetary and fiscal conditions should remain accommodative and provide the necessary backstop against potentially deteriorating economic conditions.

Overall, TDAM remains committed to a disciplined investment process, that seeks assets offering attractive value and strong risk/return characteristics. As we navigate any future uncertainty, we maintain our conviction in structuring well diversified, multi-asset portfolios, that can best manage risk, and deliver solid results in all market conditions.