Morgan Stanley
  • Thoughts on the Market
  • Nov 23, 2020

Giving Thanks for a Brighter 2021

With Mike Wilson
U.S. Equities Research for Investors

Transcript

Welcome to Thoughts on the Market. I'm Mike Wilson, Chief Investment Officer and Chief U.S. Equity Strategist for Morgan Stanley. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about the latest trends in the financial marketplace. It's Monday, November 23rd, at 12:30pm in New York. So let's get after it.

 

This week is Thanksgiving, my favorite holiday of the year. Turns out I'm not alone. After Christmas, Thanksgiving is America's favorite holiday, too. There are many reasons why this holiday is so cherished, but its greatest feature may be that it represents a time when family gets together. Of course, this year that feature will be diminished as COVID keeps many families from assembling the way they normally do.

 

Nonetheless, the spirit of Thanksgiving will live on. 2020 has been a difficult year for sure, but the "can-do" attitude of the human spirit will not be extinguished. We are a species that looks forward to the future, willing and able to conquer whatever challenges lie before us. Perhaps there's no better example of this tenacity than the recent announcement of a vaccine for this disease that has changed our lives so dramatically. While these vaccines won't be widely available for months, they do provide a great hope for not only Americans but people all over the world. It allows all of us to think about a future in a more normal way, and believe we are closer to the end than the beginning of this pandemic.

 

As I turn my attention to the economy and financial markets, many Americans should also be amazed and thankful for how well both are performing under the circumstances. Our ability to work from home and provide many goods and services safely is another modern miracle few thought was possible when the lockdowns first began last spring. It's also likely to change the way we work and live, even after life returns to normal. However, many investments have reflected these changes, and even discounted them, as if they're permanent. At this point, the investment opportunity may be greater to bet on life looking more like the past than something out of science fiction.

 

Just like with Thanksgiving, humans thrive on interpersonal contact and will want to experience things again the way they used to. Social gatherings, attending live events, dining in restaurants, and traveling to see friends and do business in person are likely to return with a passion next year. In fact, we see pent up demand for such activities that could overwhelm supply in the second half of next year. Remember, it's a lot easier to close the economy than to restart it, and that's potentially inflationary. Therefore, we continue to highlight stocks and sectors levered to the higher rates of inflation that we expect. These include financials, materials, consumer services like travel and leisure, and industrials.

 

The bottom line is that we're moving toward the end of this ordeal, but we still have some important hurdles to get past. The second wave of the virus has arrived and the Thanksgiving holiday travel may accelerate the spread in the short term even as such travel is much less than normal. Second, with the excitement around an effective vaccine now priced, many equity markets are a bit frothy at the moment. We recommend letting them simmer down a bit before committing new capital.

 

As we look toward next year, we remain optimistic on the recovery that has already begun. More importantly, we remain convicted in the human spirit to overcome the challenges in whatever else we may face together.

 

Happy Thanksgiving and God bless you and your family.

 

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As Thanksgiving approaches in the U.S., it’s worth taking a moment to be thankful for potential vaccines, a remarkably resilient economy and the strength of the human spirit.

Each week, Mike Wilson offers his perspective on the forces shaping the markets and how to separate the signal from the noise. Listen to his most recent episode and check out those of his colleagues from across Morgan Stanley Research.

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