July 29, 2020
In theory, the combination of a supportive Fed and increased fiscal spending will result in inflation. If it’s based on growth (not a supply shock), inflation is positive for risk-assets including equities, commodities and real estate. Staying just with equities and assuming a ~2% Fed target inflation rate, cyclical and value sectors should outperform. Another substantial fiscal package in the next ~2 weeks and vaccine/therapeutic development in September/October would help move this along. And if you get those things, it’s extremely likely that Q2’20 would mark an inflection point in the profit cycle when equities are cheap relative to bonds and client positioning is light.