COVID Bond Bull Market: The Next Phase Begins
In its 3Q 2021 outlook, PGIM Fixed Income shares their views on the current economic environment and outlook for fixed income markets.
GOLDILOCKS CONDITIONS RETURN FOR SECULAR GROWTH
Aug 16, 2021
Jennison Associates explains why they believe growth will regain market leadership and technology will lead the way forward.
As effective vaccines became a reality, cyclical value stocks strongly rallied on booming economic recovery prospects. Surging demand created supply shortfalls and bottlenecks, creating upward pricing pressures and lifting bond yields in the first few months of the year. But another reality began to set in—namely that economies can only reopen once. Once they have, cyclical stocks need structural underpinnings and earnings growth to continue to rise or they will fizzle out. As that recognition emerged, bond yields peaked and investors started paring cyclical bets in favor of more durable growth assets. And looking ahead, after the initial recovery spikes normalize and the effects of stimulus wane, the world is set to return to lower economic growth conditions. This reversion should keep interest rates and inflation levels in check over the long term.
GROWTH TO REGAIN LEADERSHIP
Against this backdrop, sustainable growth has become hard to find and will be in high demand. As forward-looking mechanisms, markets seem to be looking past the sugar high of the initial reopening and pricing in what the world will look like in late 2021 once inventories normalize. As secular growth stocks have traditionally experienced growth across a range of macro conditions, we expect them to reassert their market dominance once again as these dynamics play out.
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TECH TO LEAD THE WAY FORWARD
Technology spending has been on the rise as businesses adapt to an increasingly digital world. While the radical shift in consumer behavior during the pandemic pulled forward growth for many secular trends, there is ample runway for even greater adoption as additional innovations emerge. These factors point to technology becoming even more integral to the fabric of work, life, and society going forward—driving unprecedented innovation supercycles across the global economy. Tech spending has historically led economic recoveries, but this time its impact may be more pronounced with companies across industries reimagining their business models, supply chains, and digital infrastructures. The new U.S. infrastructure plan promises to bring technological advancements and additional disruptions, which may generate exciting investment opportunities.
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The goldilocks era for secular growth is upon us and we expect powerful secular trends to shape our digital future.
RISING SECULAR STARS IN GOLDILOCKS ERA
With economies not expected to remain hot for much longer, and an innovation landscape that’s far from cold, conditions seem just right for secular growth stocks to drive us into the NEXT—or new exceptional technologies—economy.
ATTRACTIVE AREAS TO FIND FUTURE LEADERS
E-COMMERCE
Retail leaders facilitating direct-to-consumer experiences have significant growth potential from the explosion of online shopping demand.
SOFTWARE-AS-A-SERVICE
As cloud-based disruptors continue to accelerate the digital transformation of the enterprise, this trend is nascent but powerful.
DIGITAL PAYMENTS
Technology enablers redefining and streamlining payment processes should continue to benefit from soaring digital consumption trends.
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PGIM Real Estate shares its views on the current economic environment and outlook for global real estate securities.
Russell 1000 Growth Index measures the performance of Russell 1000 companies (large-cap growth segment of the U.S. equity universe) with higher price-to-book ratios and higher forecasted growth values. Russell 1000 Value Index measures the performance of Russell 1000 companies (large-cap growth segment of the U.S. equity universe) with lower price-to-book ratios and lower forecasted growth values. Indices are unmanaged and are provided for informational purposes only. Investors cannot directly invest in an index.
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Past performance is no guarantee of future results. The views expressed herein are those of Jennison Associates investment professionals as of 28 July 2021 and may not be reflective of their current opinions and are subject to change without notice. Neither the information contained herein nor any opinion expressed shall be construed to constitute investment advice or an offer to sell or a solicitation to buy any securities mentioned herein. Any projections or forecasts presented herein are subject to change. This commentary does not purport to provide any legal, tax, or accounting advice. Certain information in this commentary has been obtained from sources believed to be reliable as of the date presented; however, we cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. The information contained herein is current as of the date of issuance (or such earlier date as referenced herein) and is subject to change without notice.
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