Representatives from Allianz Investment Management LLC provide commentary on market and economic indicators, including Federal Reserve actions, interest rates, credit markets, and economic releases such as inflation, GDP, consumer confidence, housing, retail sales, and job unemployment news. Here is their insight on what’s ahead for 2021.
Allianz Investment Management LLC 2021 Market Outlook
Lower fiscal spending puts the pressure on monetary policy to remain accommodative and the potential for additional monetary stimulus increases should the conditions warrant it.
There is no doubt the path of the virus will continue to dictate the trajectory of the economy in the near term and rising virus cases heading into the winter months will prove to be a challenging environment for the economy. Restrictions from state and local governments will likely dampen economic activity in the short-run. However, the progress made towards a viable vaccine combined with the likelihood of additional fiscal stimulus to bridge the economic output gap is setting up the economy for a strong rebound in 2H of 2021. Should an effective vaccine take hold in 2021, we suspect consumers will come out of hibernation and economic activity will re-open across all sectors, providing a strong tailwind for GDP in 2021.
Inflation has been a tricky topic for market participants and Fed officials alike in recent years and 2021 likely won’t be any different. The pandemic has caused some damaging effects on specific sectors with demand and prices collapsing during the first lockdown. While we expect demand and prices to rebound in depressed sectors next year, there is little evidence to support overshooting inflation. After all, labor market conditions remain unfavorable for runaway inflation and with unemployment levels remaining elevated, inflation will likely be contained. Overall, we expect inflation, measured by core personal consumption expenditures, to normalize in 2021 and not overshoot.