By John P. Calamos*
Over recent months, Calamos Investments has expressed cautious optimism for a V-shaped economic recovery, and an expectation that the downturn would be severe but short-lived. Looking forward, we maintain our expectation for a return to global growth and improved corporate productivity and profitability. Supported by more than $25 trillion in global monetary and fiscal stimulus, economies around the world are making their way back. The pace of recovery will vary from country to country, due to fiscal policy and differing degrees of stimulus, as well as the course of the pandemic. Not all companies will enjoy a V-shaped recovery during this period of accelerated disruption, but we have already seen many innovative businesses adapting and flourishing as they meet the needs of a rapidly evolving global economy.
There is no doubt that many challenges lie ahead. In the U.S., second quarter GDP plummeted to record levels, while consumer activity imploded amid soaring unemployment. Many business and individuals are facing significant pressures. However, we must remember how resilient the economy has been—both during past challenges as well as now. On a month-to-month basis, we have seen upticks in a variety of U.S. and global economic data points related to consumer and company activity. We are already seeing improvements against expectations for a number of data points, in the U.S., China and Europe. While inflation is likely to notch up modestly after 2020 we don’t expect these inflationary pressures to upend recovery over the near term.
We believe there is additional upside for global equity and convertible markets through the remainder of the year and beyond, supported by unprecedented monetary and fiscal policy measures, synchronized global recovery, and attractive valuations in many parts of the world. However, active management is paramount, given the many uncertainties in the global economy, as well as the continued bifurcation we expect between leaders and laggards.
Recent weeks have brought headlines announcing high-profile bankruptcies among companies that have not been able to withstand the pressures of the shutdown. But other businesses are quickly adapting and gaining ground, including the handful of mega-cap tech and consumer names that have driven the stock market’s rebound. However, there are also a number of lesser-known, smaller-cap U.S. companies that have flourished, many of which are tied to “at home” trends that have quickly taken hold. Looking globally, key investment themes include artificial intelligence and automation, bioprocessing, global payment networks, and green energy solutions.
Investors should be prepared for significant market volatility and market rotation. Fiscal policy has been a key underpinning of market sentiment, so as the U.S. presidential election approaches, markets are likely to become increasingly jittery. As the saying goes, markets hate uncertainty. Although many polls currently suggest there may be a change in leadership, we don’t need to look too far back in history to see that anything is possible. This lack of visibility requires that investors maintain a long-term perspective—and focus on putting a plan in place now versus making frantic portfolio shifts in the days before and after the election.
My investment career extends back 50 years, and in my experience, a well-diversified, risk aware asset allocation is one of the best tools for navigating uncertain markets and for turning volatility into opportunity. Geographic diversification is especially important. While U.S. companies across the capitalization spectrum offer compelling growth potential, adding strategies that invest in non-U.S. securities provides access to a broader opportunity set.
Asset class diversification is also essential. Given our expectation for rising but volatile equity markets, convertible securities may be an attractive choice for investors who are worried about stock market volatility or interest rates. Finally, it is encouraging to see how many investment professionals are helping investors explore alternative strategies, which can be used as either an enhancement to an equity or fixed income allocation. Calamos has been at the forefront of alternative investing throughout the decades, and remains a market leader in this area.
In an environment that favors active and selective approaches, fundamental research, and innovative risk management, Calamos is positioned to help investors meet their long-term financial goals.
Opinions, estimates, forecasts, and statements of financial market trends are subject to change without notice. The views and strategies described may not be appropriate for all investors. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations. Asset allocation and diversification do not guarantee a profit or protect against a loss. Alternative investments are not appropriate for all investors. Investments in non-U.S. securities entail added risk. Convertible securities entail default risk and interest rate risk.
*John P. Calamos, Sr. is the Founder, Chairman and Global Chief Investment Officer of Calamos Investments.