Investment Outlook

There’s No Going Back to the Pre-Pandemic Normal

The onset of the pandemic abruptly interrupted our familiar way of life. With little time to think, we upended our personal and professional lives to help protect ourselves, our families and our communities. Eighteen months and more than 6 billion doses of vaccine later, the end of the health crisis remains elusive.

Despite this ongoing uncertainty, the global economy, corporate earnings and investor confidence are recovering. The challenge is determining what “normal” now looks like and understanding the investment implications of the changes the pandemic has brought to business practices and consumer behavior.

Which New Habits Are Here to Stay?

Remote and hybrid approaches to working were emerging before COVID-19, with 22% of workers spending at least part of their workweeks at home. That number jumped to 42% in 2020.¹ What’s more, the pandemic has demonstrated that digital and virtual capabilities make hybrid working environments practical and effective.

According to one study, working at home just one day a week boosts productivity by nearly 5%.² With employees appreciating flexibility and employers seeing productivity gains, we think the hybrid trend has staying power.

We don’t have to look far to find other examples of how accelerating digitalization has changed consumer behavior. More of us are taking advantage of restaurant delivery, online grocery shopping, telemedicine and remote learning despite the easing of many COVID restrictions. These conveniences will likely become permanent parts of our lifestyles in the post-pandemic era.

Adapting Is Key

It takes up to eight months for a new behavior to turn into a habit.³ As long-term investors, it’s important to analyze new consumer and business habits to spot opportunities and emerging risks.

The early days of the pandemic provide a good example. With people spending more time at home, it was quickly apparent that trends in cloud computing, 5G, e-commerce and online entertainment would accelerate. Leaders in these areas were bright spots for investors at a time when the outlook was bleak for industries more dependent on economic growth.

Pandemic disruption also inspired innovation. A survey of manufacturing chief financial officers indicates 44% plan to provide new aftermarket services, 42% will introduce new products and nearly one-third will distribute to new end markets.⁴ These executives are also hastening their adoption of industrial Internet of Things technology that weds interconnectivity, automation, machine learning and real-time data.⁵

Shoring Up Supply Chains

To improve their resilience and better serve customers, companies are shortening their supply chains. Many developed-market businesses are bringing back jobs and production from overseas to domestic locations.

This pivot is imperative for businesses whose supply chains snapped in 2020. Companies that produce transportation equipment, chemicals, electrical equipment and food are leading the onshoring charge in the U.S. Meanwhile, they’re scaling back production operations in countries such as China, Japan, Germany and Canada.⁶ We expect this activity to boost capital spending, create jobs in the U.S. and help strengthen the U.S. dollar.

Recognizing the Risks of Higher Inflation

As we discussed last quarter, we’re keeping a wary eye on inflation. It’s an emerging dynamic due to massive fiscal and monetary support, coupled with structural adjustments in business and consumer activity. While we believe higher inflation may not be as transitory as some expect, we don’t think it’s here to stay.

Against this backdrop, we think it’s a good time to reevaluate portfolios. Should you consider deploying inflation-protected fixed income strategies or short duration multi-sector fixed income strategies? For longterm equity positions, we believe it’s time to get balanced between value and growth stocks.

Thank you for entrusting us with your capital.

¹“American Time Use Survey – May to December 2019 and 2020 Results,” U.S. Bureau of Labor Statistics, July 22, 2021.

²Libby Cherry, “The Hybrid Work Revolution Is Already Transforming Economies,” Bloomberg, August 25, 2021.

³Phillippa Lally, Cornelia H.M. Van Jaarsveld, et al., “How are habits formed: Modelling habit formation in the real world,” European Journal of Social Psychology 40 (2010): 998-1009.

⁴“2021 Manufacturing CFO Outlook Survey: Ingenuity Through Crisis,” BDO, January 19, 2021.

⁵“What is Industry 4.0 – The Industrial Internet of Things (IIOT)?” Epicor website, accessed September 1, 2021.

⁶Cornerstone Macro, June 2021.