“Expectations for a broad rollout of Covid vaccines have boosted the case for the restart to gather pace next year, boding well for risk assets. We see higher inflation in coming years and the policy revolution implies that central banks will limit the rise of nominal yields. Even the moderate rise in inflation that we expect may surprise markets, …Yet we see this as a positive backdrop for equities: Firmer inflation and a lid on nominal yields mean lower real interest rates. This supports equity valuations: the present value of future cash flows is higher when discount rates are low.
Our pro-risk view is fast becoming consensus, and could be quickly priced in. But we see our views departing from the crowd in three key ways: First, many are still looking ahead to 2021 through the lens of a traditional business cycle framework. But we believe this playbook doesn’t apply: in the same way that the “stoppage” was different from a “recession”, the “restart” is different from a “recovery.””
(Why we are turning bullish for 2021 dated 12/07/20 by Jean Boivin, Head, Elga Bartsch, Head of Macro Research, Mike Pyle, Global Chief Investment Strategist, and Scott Thiel, Chief Fixed Income Strategist, with BlackRock Investment Institute)
Full article can be read here: https://www.blackrock.com/corporate/literature/market-commentary/weekly-investment-commentary-en-us-20201207-why-bullish-2021-outlook.pdf