As Democrats seem poised to pick up two Senate seats in Georgia’s runoff, Renaissance Macro Research’s head of economics Neil Dutta lays out the areas investors should focus on going forward.
“We like banks, energy and emerging markets,” wrote Dutta in a note to investors.
While his team resists “the temptation that sweeping changes are in the offing,” additional COVID-19 relief is likely coming.
“Democrats in Georgia had a simple message: $2,000 checks to households,” he said.
“2021 GDP estimates, currently at just four percent, will continue to rise; the right tail is likely to come up as additional fiscal relief comes into play,” he added.
“The Fed will resist changing its current policy guidance and will accommodate the improvement in the economy – passive easing. This should lift inflation expectations, help steepen the yield curve, and provide a tailwind to U.S. banks,” said Dutta.
He also says emerging markets will outperform given a weaker dollar exchange rate.
“Because emerging markets have lots of exposure of credit denominated in dollars, a weaker dollar should loosen EM financial conditions, lifting activity across emerging markets,” he wrote.
The recovery in global growth is expected to provide a lift to energy and other industrial commodities.
“We know it sounds odd to be upbeat banks and energy with a Democratic sweep, but here we are. Usually, cyclical dynamics dominate political considerations. Capital spending has been quite sluggish in recent years and a return to normal should also provide a boost for EM,” wrote Dutta.
Ines covers the U.S. stock market. Follow her on Twitter at @ines_ferre
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