The Great Pandemic Legacy: A Stronger Global Economy

“THE LEGACY OF THE CORONAVIRUS will persist long after the virus itself fades into memory,” says Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank.  It has altered the course of economic growth and disrupted the global geopolitical landscape, and its effects could be felt for years to come.

Perhaps its most profound impact has been to accelerate the pace of global trends that were already underway—working, living and shopping more remotely, for example, and restructuring a globalized economy to one more focused on local supply chains. And despite the real and enormous suffering the pandemic has caused, the Chief Investment Office (CIO) believes the economy that emerges on the other side of the pandemic is likely to be stronger.

In a new report, “The Great Pandemic Legacy,” the CIO outlines these changes, as well as portfolio considerations to help investors prepare to capture potential opportunities in a post-pandemic economy. This is the tenth and final installment of the “Great” series—CIO reports that since April have tracked the biggest pandemic-related developments and their impact on the economy, the markets, portfolio strategy and asset allocation. Those early days now feel like years ago, rather than mere months. Here’s where we stand now, and why the CIO believes a better future likely awaits.

New patterns for economic growth

As the number of at-home workers escalated from about 5% of the total workforce to nearly half,¹ people have discovered that it’s a much more viable option than they expected. That trend, along with Americans seeking new ways to entertain themselves at home, has driven a surge in online shopping and in the demand for consumer goods. Another potential legacy of the pandemic is higher labor productivity. While half of all job losses had been recovered by September, a much larger share of output was recovered².

A larger role for policy

Governments worldwide acted swiftly to bolster their economies in the early days of the crisis. The U.S. economy and financial markets have benefited from the Federal Reserve’s low interest rates and other pro-growth strategies, while direct relief to families through the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was so massive that for the first time ever household income rose rather than fell in a recession. This explains why retail sales set new records in the third quarter, despite still-high unemployment.” Such successes demonstrate the government’s ability to support the economy, especially during crises that force widespread shutdowns. In the short term, they could pave the way for additional rounds of stimulus as the pandemic wears on.

A shifting geopolitical stage

Global opinion on China has soured amid the country’s lack of transparency about the origins of the coronavirus, and its early response to the crisis. U.S.-China relations, already tense, have worsened considerably. This new cold war is playing out most intensely in the battle for new technologies. Additionally, the U.S. and many European and Asian countries are actively seeking to move production of products closer to home to help protect against future disruptions. Both trends could help support growth in U.S. technology and other innovative industries.

What investors should consider

Taken together, the changes wrought by the pandemic suggest a long-term greater commitment to U.S. stocks, says Hyzy. While the pandemic’s still-uncertain future, geopolitical tensions and other challenges will likely cause ongoing periods of volatility, “We believe we are in the early stages of a new, long-term bull market featuring industry growth, stronger capital investment and rising productivity.”

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