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Fingers Crossed: The conditions St. Louis money managers say will boost markets this year

28 January 2021

(St, Louis Business Journal)

January 27, 2021 (Greg Edwards)

With a booming stock market, a changed political landscape and an ongoing pandemic, St. Louis money managers offered investor wish lists for economic and social conditions in 2021.

Ward Brown, a trader and analyst at Clayton-based Argent Capital Management, called his list “the framework for what a good year would look like.” What he is needed:

  • Earnings growth to support the current high valuations: “The market is expensive relative to history and has priced in quite a bit of the recovery. The best way to alleviate that is for companies to continue to earn more than expected,” Brown said.
  • Economic recovery to support earnings growth: The passing of additional fiscal stimulus would help to bridge the gap between now and the reopeneing of business, plus the resumption of travel.
  • Strong market breadth: A wider array of stocks need to participate in the recovery- not just the big tech stocks. “For example, Apple’s market cap, the valuation of all of its share of stock, is now worth around $2 trillion – just a few years ago no company had a market cap of even $1 trillion,” he said. Facebook, Apple, Amazon, Microsoft and Google collectively accounted for more than 48% of S&P market gains as 2020 came to a close. Recently, small and midsized companies, some residing in the value sector have done well, and that “catch up” needs to continue.
  • Slightly higher interest rates: This speaks well for higher economic growth expectations. The 10-year interest rate is back over 1% for the first time in quite awhile. The Fed indicates it will continue its current policy, which will be good for banks and keep the yield curve where it should be.

Ken Bower, CEO and managing partner at Clayton Financial Group, wants to see more details on government spending, higher yields on fixed-income investments, and an unleashing of consumer demand.

  • Definition and clarity around government spending related to coronavirus and stimulus and infrastructure projects: “This will help the markets reassess pricing,” he said.
  • More attractive yields on fixed-income offerings: “A majority of clients have record-high percentages of cash due to current low fixed-income yields and high equity valuations,” Bower said.
  • Vaccine success and effectiveness, availability and adoption: “If we get all three parts of this wish list, many parts of the economy, such as restaurants, hospitality, hotels, car rentals and air travel, will take off,” he said. “This boom will fuel job growth.”
  • Demand recognition: “There is a lot of pent-up demand for social gatherings, ballgames, indoor dining, travel, and so on,” Bower said. “If people act prudently and safely over the next three months, the U.S. and global economies should be poised for a rapid uptick in a variety of industries as people unleash their demand for goods and services that has been building for almost a full year.”

The coronavirus and inflation also are on the mind of Joe Terril of Terril & Co., as is better relations between the U.S> and China. “A true economic revival is needed in Europe, the U.S., Brazil, India, Canada and other due to the virus disappearing. It is an impediment to world economic growth,” he said. He also is hoping for “inflation remaining tame around the world,” but added, “I’m not optimistic here.”