The Macro View by Lionomics, February 2021


We work with Wilshire, one of the nation’s largest investment research consultants, to bring you investment advice and market insights. Each quarter in The Macro View, we bring you Wilshire’s quarterly viewpoints on the big economic stories, with insights about the asset classes that may appear in your investment portfolio. Let’s dive into the latest quarter.

2020 ends with a big global equities rally

Global equities (stocks) continued to stage a tremendous rally in the fourth quarter of 2020, benefiting primarily from optimism regarding the development and distribution of a COVID-19 vaccine, and additional stimulus. Many investors have called the recovery in equities irrational, believing that equity prices appear to be detached from the real economy, but markets often trade ahead of the economy and earnings growth, and the current environment is no exception. The recovery in economic growth and corporate earnings is very much intact. While more recent observations of personal consumption and retail sales have shown some weakness, it is likely temporary due to the recent surge in COVID-19 cases. 

Fortunately, global manufacturing PMIs (Purchasing Managers Indexes, which can help indicate economic trends in the manufacturing and service sectors) have staged strong recoveries, particularly in the U.S. Given the recovery in manufacturing activity and the relatively strong financial health of the U.S. consumer, we will likely witness a reacceleration in personal spending (which helps drive the economy) of both goods and services on the heels of further stimulus, and as COVID-19 cases subside. Investors should be prepared for very strong U.S. GDP growth in 2021, coinciding with higher inflation, higher interest rates, and a turbulent road higher for global equities. 

Asset class perspectives — MoneyLion portfolios

We’ve summarized Wilshire’s Q1 2021 viewpoint on the core components of MoneyLion members’ investment portfolios:

Fixed income vs equities

Despite a positive economic outlook, which would normally be expected to benefit equities coming out of a recession, valuations are not materially more attractive in equities vs. fixed income, resulting in a neutral posture.

Large cap vs small cap equities

We recognize that small caps are likely to benefit from an economic recovery, however given the dramatic level of outperformance in small cap during the fourth quarter, Wilshire is maintaining a neutral posture relative to large caps at this time.

Global ex-U.S. vs U.S. equities

Despite attractive relative valuations in non-U.S. developed market equities, the structural headwinds that Europe faces with a unified monetary policy applied to differentiated economies increases the uncertainty regarding its ability to recover from this downturn. Similarly, Japan has already been battling deflationary pressure for decades, and was only recently beginning to gain momentum. Furthermore, earnings recovery expectations are not as strong in foreign developed markets relative to the U.S. Therefore, we are remaining neutral.

Emerging markets vs developed equities and U.S. equities

Emerging economies are forecasted to deliver stronger economic growth in 2021 and have historically outperformed coming out of recessions. Emerging markets also offer more attractive valuations relative to the U.S. and foreign developed markets. Therefore, we maintain our overweight view in emerging markets, and are now also sourcing our overweight to emerging markets from U.S. equities.

Macroeconomic outlook: Temporary slowing in the recovery of personal consumption

The remarkable economic rebound during the third quarter outpaced expectations, and the V-shaped recovery in personal consumption, particularly durable goods, showed the resilience of the U.S. consumer. Unfortunately, more recent observations show signs of slowing in personal consumption and retail sales throughout the quarter (Exhibits A and B). This is likely a temporary result of the recent surge in COVID-19 cases in the U.S. 

Fortunately, U.S households appear relatively well positioned to manage through this challenging environment, after having accumulated nearly $1 trillion in excess savings relative to the pre-pandemic trend, thanks to the significant increase in disposable income from government stimulus in Q2 of 2020 (Exhibit C).

Exhibit A: Consumption slows following a strong third quarter in 2020


Exhibit B: Retail sales rolled over in the fourth quarter of 2020


Exhibit C: Nearly $1 trillion in excess savings vs pre-COVID trends


Macroeconomic outlook: U.S. manufacturing recovery gaining momentum

Global manufacturing PMIs (Purchasing Managers Indexes) have also staged a V-shaped recovery, with most of the developed world still signaling expansion (above 50). (See Exhibit D.) While foreign economies are showing some degree of moderation in manufacturing sentiment, the U.S. manufacturing PMI continues to surge higher, and signs of higher export activity and container throughput are further indications of a pick-up in trade activity.

Exhibit D: Global manufacturing PMIs recover


How did consumers, CEOs and small businesses view the markets?

  • Consumer confidence has remained stubbornly low despite the significant recovery in personal consumption and asset valuations. While the COVID-19 pandemic has certainly weighed on sentiment, particularly during this recent surge in cases, history has shown that it takes a considerable amount of time to rebuild consumer confidence. Consumer confidence is measured by the Consumer Confidence Index (CCI), a survey that measures how optimistic or pessimistic consumers are regarding their expected financial situation. This is generally used to help get an idea of how consumer spending may be affected, which is important for the economy.
  • CEO confidence, on the other hand, has remained relatively elevated and has historically confidence. CEO confidence had nearly fully recovered within two years following the depths of the global financial crisis, while Consumer confidence took nearly eight years to recover (Exhibit E). CEO confidence is measured by the CEO Confidence Survey, a survey of 100 chief executive officers (CEOs) from a variety of industries in the U.S. economy, which seeks to gauge CEO concerns for their businesses, and their view on where the economy is headed.
  • Small business optimism also remained subdued for an extended period, and has been more directly impacted by the forced closures of food and beverage accommodations, which will likely recover quickly as these establishments reopen. Investors should not infer too much from the current depressed levels of sentiment amongst consumers and small business owners, as it may take longer for these measures to recover. Small business optimism is measured by the Small Business Optimism Index, which provides an indication of the health of small businesses in the U.S., which account for roughly 50% of the nation’s private workforce.

Exhibit E: CEOs more confident than consumers

Exhibit E: CEOs more confident than consumers

In summary

In summary, the market and economy continue to recover however Wilshire is keeping an eye on overall volatility, consumer spending as well as changes to interest rates and inflation.  Wilshire maintains their pro-risk and pro-cyclical views to remain overweight value equities and emerging markets. Overweight refers to an analyst’s opinion that a particular stock may outperform its sector average in the near future. Wilshire is taking a more balanced view when it comes to different types of fixed income based on potential changes in interest rates.

As always, it is good investing behavior to keep a diversified portfolio, which MoneyLion members can maintain by choosing one of seven options based on their risk preferences. Additionally, investing on a recurring basis using Auto Invest allows MoneyLion members to stay consistent through macroeconomic developments without attempting to time the market.

Important information

Wilshire Funds Management (“WFM”) is a business unit of Wilshire Advisors, LLC. This material contains confidential and proprietary information of Wilshire. It may not be disclosed, reproduced or redistributed, in whole or in part, to any other person or entity without prior written permission from Wilshire.This material is intended for informational purposes only and should not be construed as legal, accounting, tax, investment, or other professional advice. Past performance is not indicative of future results. This material may include estimates, projections and other “forward-looking statements.” Forward-looking statements represent Wilshire’s current beliefs and opinions in respect of potential future events. These statements are not guarantees of future performance and undue reliance should not be placed on them. Such forward-looking statements necessarily involve known and unknown risks and uncertainties, which may cause actual events, performance and financial results to differ materially from any projections. Forward-looking statements speak only as of the date on which they are made and are subject to change without notice. Wilshire undertakes no obligation to update or revise any forward-looking statements. Wilshire is a global financial services firm providing diverse services to various types of investors and intermediaries. Wilshire’s products, services, investment approach and advice may differ between clients and all of Wilshire’s products and services may not be available to all clients. For more information regarding Wilshire’s services, please see Wilshire’s ADV Part 2 available at This material represents the current opinion of Wilshire based on sources believed to be reliable. Wilshire assumes no duty to update any such opinions. Wilshire gives no representations or warranties as to the accuracy of such information, and accepts no responsibility or liability (including for indirect, consequential or incidental damages) for any error, omission or inaccuracy in such information and for results obtained from its use. Information and opinions are as of the date indicated, and are subject to change without notice. Wilshire Advisors, LLC (Wilshire) is an investment advisor registered with the SEC. Wilshire® is a registered service mark. All other trade names, trademarks, and/or service marks are the property of their respective holders. Copyright © 2021 Wilshire. All rights reserved.

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