How To Prime Your Portfolio For The Longest Economic Boom “In History”

How To Prime Your Portfolio For The Longest Economic Boom “In History”
Andrew Rummer

about 3 years ago3 mins

Mentioned in story

What’s going on here?

A post-pandemic return to “some form of normal” this year could spark the fastest economic growth in nearly four decades – and a rollercoaster ride for stock markets – according to a report this week from Blackstone, the world’s biggest alternative investment manager. 

What does this mean?

Blackstone looks after nearly $600 billion worth of investments for clients, with commercial real estate and private equity particular areas of expertise. Its views therefore carry considerable clout.

And when it comes to 2021, Blackstone’s very optimistic about the US economy – predicting coronavirus vaccines will allow America to reopen for business by the end of May. Combined with continuing support from the government and Federal Reserve, that could help US economic growth top 6% for the year – the fastest pace since the early ‘80s. And this boom may be just the beginning: Blackstone reckons there’s a strong chance that 2021 will kick off the longest-ever period of economic expansion Stateside, “surpassing the cycle that lasted from 2010 to 2020”. 

Chart of US economic growth
US economic growth history (Source: World Bank)

For US stocks, this means a strong but bumpy year may lie ahead. While Blackstone believes the market could tumble almost 20% during the first six months of 2021, it also expects the benchmark S&P 500 index to end up hitting 4,500 – 20% above its current record-high level. A bit like 2020 all over again, then...

In other markets, all that economic growth and an accompanying (modest) increase in inflation will, says Blackstone, push gold higher and US government bond prices lower – with the yield on 10-year Treasuries roughly doubling to 2%. Cryptocurrencies, meanwhile, will “gain more respect” – but there’s no view as to whether bitcoin will improve on its present $40,000 valuation.

Why should I care?

If Blackstone’s right, then investors are in for a wild ride this year. If you’re invested in US stocks, it may be worth mentally preparing for some big ups and downs. That way you’ll be ready to resist any temptation to meddle needlessly (and expensively) with your portfolio – although a few subtle shifts in emphasis could be in order. 

But behind the headline moves, Blackstone sees energy, hospitality, and airline shares as some of the biggest winners of 2021. Oil companies should perform well in a scenario where per-barrel prices climb to $65, driven by a pickup in manufacturing and travel. And the investment giant expects “depressed” hospitality and airline stocks to benefit as lockdowns give way to a resurgent wanderlust.

Oil price chart
The oil price has been creeping back up (Source: Koyfin)

The tech sector, however, may suffer – with investors selling its expensive stocks to fund purchases elsewhere. According to Blackstone, so-called “cyclical” stocks – those most closely attuned to economic growth – will do better than more insulated “defensive” bets. Smaller companies, moreover, should beat large ones in general. 

All of these predictions are basically reversals of last year’s pattern, which saw Big Tech trump all comers. And Blackstone expects another big change, in terms of cause if not effect: a thawing of US-China relations will, it says, cause Chinese shares to lead a rally in emerging markets.

Overall, there’s some serious food for thought as we head into 2021. Fortunately, appropriate exchange-traded funds (ETFs) are readily available to let Finimizers who back Blackstone’s thinking put those ideas into practice. Furthermore, Blackstone itself is listed on the New York Stock Exchange unde the BX ticker – so you can buy, sell, or short its shares if you feel particularly strongly about its optimistic outlook.

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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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