2020.10.26 – Buy The Cyclical And Reflation Trade?

$ 499 + HST

EXECUTIVE SUMMARY

The global economy seems to be setting up for a strong recovery. We are seeing a combination of easy monetary policy, slimmed-down supply chains and a rebound in consumer confidence.

However, there are a number of key risks to the cyclical and reflation thesis:

  • Another wave of COVID-19 infections;
  • A loss of economic recovery momentum;
  • The uncertainty of additional fiscal stimulus; and
  • The effects of rising inflationary expectations on Fed policy.

Under these circumstances, investors need to recognize that the sources of alpha are multi-dimensional, and so is risk. While we can always hope for the best, bad outcomes are very possible in these conditions. It is important to repeat the adage that the only free lunch in investing is diversification, and only a diversified portfolio can weather this diverse array of risks. As well, investors can creatively conduct scenario analysis in order to mitigate any risks specific to their investment objectives, situation and investment capability.

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