U.S. Sector portfolio outlook, positioning, and attribution as of 6/30/2021
June 30, 2021
- We expect continued economic and earnings growth, along with market gains, as this cycle shifts from rapid recovery to a more normalized economic expansion.
- The post-COVID economic and profit recovery has occurred at an unprecedented pace, led by consumer spending and a sharp increase in U.S. manufacturing activity due to a surge in demand for goods across key parts of the economy, and is now seeing a strong rebound in hard-hit service industries.
- We anticipate continued positive equity returns in the coming quarters, as earnings growth should offset valuation compression, which is typical in a recovery, but we believe sector selection will be crucial in the period ahead.
- Even though economic and market risks remain, including potential for higher interest rates and a deceleration in growth rates, we believe the economic recovery will continue to progress and an overweight of select economically-sensitive sectors is appropriate.
- In Q2, we began to make adjustments to and within our allocations to economically-sensitive sectors in anticipation of a shift from rapid economic recovery to sustained expansion.
- We have added to our Information Technology allocation, which we expect will see less revenue and earnings deceleration than other economically-sensitive sectors due to positive secular trends and demand for tech capex as companies seek to adapt to the post-COVID economy.
- We also added to our Financials allocation, which we expect to benefit from continued economic growth and a potential rise in interest rates.
- We reduced exposure to the Industrials sector, which may see less pent-up demand going forward than in prior cyclical recoveries, while the sector’s valuation seems to have already priced in a strong earnings rebound.
- Consumer Staples
- Consumer Discretionary
- Real Estate