While a new strain of COVID-19 poses “serious challenges to public health and activity restart” and the first half of 2021 will be a “choppy ride”, BlackRock believes that the worst of the economic damage is over.
“Ultimately we still expect the cumulative economic activity loss from the COVID shock – what matters for markets – to be just a fraction of that seen after the global financial crisis, and believe investors should look through any market volatility triggered by evolving virus dynamics,” BlackRock said.
“The rollout of vaccines is off to a slow start, yet we believe once vaccination becomes widespread it will allow a more forceful restart due to the pent-up demand.”
While markets have mostly shrugged off unrest in Washington, DC, a Democrat-controlled government means that President-elect Joe Biden will have an easier time pushing through the more radical parts of his agenda if he wishes – but BlackRock also anticipates Mr Biden will still try and keep the peace on Wall Street.
“We expect greater fiscal spending to be largely funded through increased deficits rather than higher taxes, given the Democrats’ slim majority in both chambers of Congress. The policy revolution has brought on greater tolerance for higher debt globally, yet just how long such attitudes could last is key,” BlackRock said.
“Modest increases in corporate taxes may be possible, but large-scale changes including raising taxes on high-income earners, appear unlikely, in our view. Democratic control of the Senate will likely lead to smooth confirmation of nominees to head the regulatory agencies that are crucial for policymaking.”
