Via Morgan Stanley:
November is the month when our macro team gets together to discuss its year-ahead outlooks across all asset classes. It’s a rigorous two-week process that allows us to collaborate and think about the next 12 months rather than the next 12 hours. As a strategist, I’m always torn between trying to forecast the next year versus the next week, and quite frankly I look forward to thinking about the longer term. However, with a US election this month and an ongoing global pandemic, this year’s process presented some unique challenges.
The 12-month view is often easier to map out than the very short-term outlook because it comes down to things that can be analyzed and forecast – namely, earnings and interest rates. While flows, sentiment or positioning may dominate stock prices in the short term, the value of a stock is ultimately determined by earnings and valuation, which is heavily dependent on interest rates. On both counts, our calls this year have been highly consistent. We’ve been well ahead of the consensus on the recovery story and specifically on earnings. We have also been more bearish than consensus on bonds, especially long-dated ones, where we think rates are likely to head meaningfully higher next year.
