Where to find equity opportunities as the economy heats up

The United States has made significant progress against COVID-19. The success of the fight against the virus, combined with the massive stimulus launched in recent months, has helped revive economic activity in several sectors of the economy. About 36% of Americans are now fully immunized, and that number will continue to rise now that children between the ages of 12 and 15 have been cleared to start receiving the vaccine.

Rising inflation and higher yields are signs of an economy in the process of normalizing. In April, the Core Consumer Price Index (CPI), which excludes volatile food and energy prices, beat industry estimates. He increased 3% on an annualized basis and increased 0.9% from March, compared to the forecast of 2.3% and 0.3%, respectively. Bond yields continue to reflect concerns about inflation, but the US 10-year rate hovers around 1.60%, it could be much higher.

While rising inflation has scared investors off, in my opinion this is just a sign that the United States – teeming with liquidity thanks to fiscal and monetary stimulus measures – has started to reopen faster than many. had not planned. As economic activity, including consumer spending, begins to buzz, inflation is rising.

In my core large-cap portfolio, I remain focused on economically sensitive stocks that will benefit from the recovery. I am moving towards value names that have increased productivity through lean operations, as well as companies capable of raising prices to cope with the higher cost of materials.

Acceleration of economic activity

For the past year, we’ve been talking about how the stimulus will fuel the recovery, and now we’re seeing that come true in amazing ways – especially with productivity growth. In the first trimester, US GDP grew 6.4% on an annualized basis, reflecting the continued economic recovery, business re-openings, and the impact of policies such as direct payments to consumers, increased unemployment benefits, and paycheck protection program loans.

Household income has also increased, as has consumer confidence. U.S. personal income grew at a record 21.1% in March, for the largest monthly increase since record keeping began in 1959. In April, the Conference Board’s Consumer Confidence Index rose sharply to 121.7, from 109.0 in March.

I expect spending to accelerate in the coming months due to record household savings and more reopenings. Full of cash, consumers began to expand their shopping to services as well as goods. Although in April, retail sales were flat after a 10.7% surge in March due to stimulus measures.

Consumer the savings are still quite high: In March, the rate was 27.6%. Compare that to a historic “normal” rate of just 5%, and you have the recipe for robust spending going forward.

All of this activity is fundamentally inflationary. While the core CPI exceeded expectations in April, so did the headline CPI, which rose 4.2% from a year earlier, compared to expectations of an increase of 3.6%. OIn fact, the April CPI gained 0.8% from March, compared to 0.2% expected.