Show Transcript
2020 will go down in history as the year when a previously unknown virus wreaked havoc across the globe. Kim Parlee speaks with David Sykes, Head of Public Equities at TD Asset Management, about how vaccines could help turn the healthcare, economic and earnings picture around in 2021.
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- 2020 is going to go down in history as the year where a previously unknown virus wreaked havoc on the world, killing 1.5 million people and crushing economies along the way. My next guest says that if 2020 was about the virus, then 2021 will be about the vaccine.
Joining me now is David Sykes. He is head of public equities at TD Asset Management. Dave, good to see you. Let's just start with my understanding of what you think right now is that in order to understand what's going to happen in 2021, we need to really truly understand what happened in 2020.
- Yeah. Hi, Kim. I think that's right. Nice to see you. To me, 2020 was a tumultuous year for sure. But I think if we're going to try and look ahead, I think it's really important to look back and say, what is the core root of the problem? And I think, to me, the core root of the problem is a virus. And that's a health care crisis. It's a health care problem and it demands a health care solution.
And I think thanks to the good news we received in November around vaccines, it's not perfect. It's not going to happen incredibly quickly. It's going to take time. But you can see a solution on the horizon. And I think the vaccine news in November was really, really important, not just for all of us in our health, but also for the economy and for markets as well.
What about the economy though? Because I know we are seeing right now, I'd say, there's a bit of a race going on between the vaccine and the virus. I know the markets price-- they price ahead, they look to the future. But in the meantime, we've got cases skyrocketing. So are you concerned about Q1 and Q2?
- Yeah I mean, Kim, there's lots to be concerned about. And certainly from a health care standpoint, from a societal standpoint, this is not a lot of fun. You know, I've got two small children. They're not back at school yet. It's a struggle in the community, for in terms of hospitalizations and case numbers. It's really not good.
But I think your question hinted that the market really is forward looking. And the market is looking out 12 months from now, 18 months from now, to say, you know what, we have a better understanding of the virus. We have good testing. We've got good social protocols. And now, if we can tack on a vaccine, which again will take time, I do think there is some light at the end of the tunnel.
So tell me a bit about that light that you're seeing in terms of GDP, job growth earnings. What do you think could be happening?
- Well if you look at 2020, I mean unemployment in the United States, as an example, skyrocketed north of 15%. I mean, it was unbelievably swift. I've never seen anything like this in my career before where you literally shut down an economy. But if you look today, we're now at an unemployment rate hovering around 6.9%. And so thanks to some incredible moves by central banks, by governments around the world, you've really seen a rebound in those economic numbers.
And if you look at corporate profits, you know, last year was a tumultuous year, but believe it or not corporate profits as measured by the S&P 500, were down about 15%. And we think this year, you're probably baking in quite easily a 20% rebound in profits. And it could even be higher, could be as much as 25% or 30%. But this, again, will all come back to the solution for the health care crisis, which is the vaccine. How quickly do we get it rolled out, how efficacious is it, how many people will take the vaccine.
What sectors are you watching for '21?
- Yeah. Kim, 2020 was really all about technology. And I think from a market standpoint, that made a lot of sense. Interest rates plummeted. There was no growth. And in that type of environment, growth is very scarce. So people gravitated to technology, high growth companies, companies that really work in an economic shutdown when you're at home, and sort of those internet plays are sort of your lifeline to the world.
I think this year is a bit of the reverse. I think you are starting to see, have seen the rotation, and I think that continues. You're going to see a little bit of a back up in interest rates. That's going to help financials, I think, quite a bit. All the concerns about loan losses-- those have come down significantly.
And then the other area I think you need to look towards is industrials, that global growth global sectors, global trade, that's going to pick up again. So to me, it's those cyclical sectors that were really, really hurt last year. And then, lastly, I think energy does have a bit of room here as well. It's not a huge part of the portfolios that I manage, but I do think energy has seen a nice rebound.
And again, if, if, if-- but if we continue to slowly vaccinate as a population, we got our demands coming back. I do think energy can have some room to move in 2021 as well.
- Not to be pessimistic, Dave. But I mean, if you look ahead, what are some things that could derail your outlook for '21.
- Yeah, Kim, I guess there would be three broad things that I would worry about. One would be some type of side effect of the vaccine that we're not aware of. I'm not really worried about that. Most safety issues around the vaccine, they would have come up by now. So I think we're OK on that front, but it's still a possibility.
The second thing that I worry about, of course, are those interest rates. You know, what happens if we've provided so much stimulus, so much fiscal spending, so much monetary quantitative easing globally, what happens if the rebound is a little bit faster than we're all thinking? Those rates spike up a little bit higher. That certainly wouldn't be good.
And then third, it's really around the virus. And we're not 100% sure whether new strains are going to be completely able to be offset with the new vaccine. So there are some risks in here for sure. But I think to me, the biggest risk is that the boom for the economy in 2021 is bigger than what we're thinking.
- You know, it's interesting because when you think about your risks for '21, I think we're so consumed I think with people watching the mainstream media right now about what's happening in the States, I think it's notable that you're not saying that, like US politics.
- Yeah and, Kim, you know there are a lot of things to be worried about. What you see happening in the United States is frankly a terrible outcome in the political process. There's all kinds of reasons to be pessimistic and concerned about today. It's tough for anyone. We're working from home. Economies are shut down. There's a second or third wave. The economic headlines aren't great. The health care headlines are really bad.
But again, it's-- the reason I'm thinking ahead is because that's how the market thinks. And there is this solution. These vaccines, 90%, 95% efficacious, not a silver bullet. It's going to take time. But I think this is a much different scenario if we didn't have this data.
And don't forget there are a number of other companies who are working on this, and I'm hopeful the next three or four weeks, we're going to see yet again large scale trials, large scale data come out to say, look, there's even more vaccine supply coming.
- Dave, we're going to leave it there. It's always a pleasure. Thanks so much.
- Thanks very much, Kim.
[MUSIC PLAYING]
Joining me now is David Sykes. He is head of public equities at TD Asset Management. Dave, good to see you. Let's just start with my understanding of what you think right now is that in order to understand what's going to happen in 2021, we need to really truly understand what happened in 2020.
- Yeah. Hi, Kim. I think that's right. Nice to see you. To me, 2020 was a tumultuous year for sure. But I think if we're going to try and look ahead, I think it's really important to look back and say, what is the core root of the problem? And I think, to me, the core root of the problem is a virus. And that's a health care crisis. It's a health care problem and it demands a health care solution.
And I think thanks to the good news we received in November around vaccines, it's not perfect. It's not going to happen incredibly quickly. It's going to take time. But you can see a solution on the horizon. And I think the vaccine news in November was really, really important, not just for all of us in our health, but also for the economy and for markets as well.
What about the economy though? Because I know we are seeing right now, I'd say, there's a bit of a race going on between the vaccine and the virus. I know the markets price-- they price ahead, they look to the future. But in the meantime, we've got cases skyrocketing. So are you concerned about Q1 and Q2?
- Yeah I mean, Kim, there's lots to be concerned about. And certainly from a health care standpoint, from a societal standpoint, this is not a lot of fun. You know, I've got two small children. They're not back at school yet. It's a struggle in the community, for in terms of hospitalizations and case numbers. It's really not good.
But I think your question hinted that the market really is forward looking. And the market is looking out 12 months from now, 18 months from now, to say, you know what, we have a better understanding of the virus. We have good testing. We've got good social protocols. And now, if we can tack on a vaccine, which again will take time, I do think there is some light at the end of the tunnel.
So tell me a bit about that light that you're seeing in terms of GDP, job growth earnings. What do you think could be happening?
- Well if you look at 2020, I mean unemployment in the United States, as an example, skyrocketed north of 15%. I mean, it was unbelievably swift. I've never seen anything like this in my career before where you literally shut down an economy. But if you look today, we're now at an unemployment rate hovering around 6.9%. And so thanks to some incredible moves by central banks, by governments around the world, you've really seen a rebound in those economic numbers.
And if you look at corporate profits, you know, last year was a tumultuous year, but believe it or not corporate profits as measured by the S&P 500, were down about 15%. And we think this year, you're probably baking in quite easily a 20% rebound in profits. And it could even be higher, could be as much as 25% or 30%. But this, again, will all come back to the solution for the health care crisis, which is the vaccine. How quickly do we get it rolled out, how efficacious is it, how many people will take the vaccine.
What sectors are you watching for '21?
- Yeah. Kim, 2020 was really all about technology. And I think from a market standpoint, that made a lot of sense. Interest rates plummeted. There was no growth. And in that type of environment, growth is very scarce. So people gravitated to technology, high growth companies, companies that really work in an economic shutdown when you're at home, and sort of those internet plays are sort of your lifeline to the world.
I think this year is a bit of the reverse. I think you are starting to see, have seen the rotation, and I think that continues. You're going to see a little bit of a back up in interest rates. That's going to help financials, I think, quite a bit. All the concerns about loan losses-- those have come down significantly.
And then the other area I think you need to look towards is industrials, that global growth global sectors, global trade, that's going to pick up again. So to me, it's those cyclical sectors that were really, really hurt last year. And then, lastly, I think energy does have a bit of room here as well. It's not a huge part of the portfolios that I manage, but I do think energy has seen a nice rebound.
And again, if, if, if-- but if we continue to slowly vaccinate as a population, we got our demands coming back. I do think energy can have some room to move in 2021 as well.
- Not to be pessimistic, Dave. But I mean, if you look ahead, what are some things that could derail your outlook for '21.
- Yeah, Kim, I guess there would be three broad things that I would worry about. One would be some type of side effect of the vaccine that we're not aware of. I'm not really worried about that. Most safety issues around the vaccine, they would have come up by now. So I think we're OK on that front, but it's still a possibility.
The second thing that I worry about, of course, are those interest rates. You know, what happens if we've provided so much stimulus, so much fiscal spending, so much monetary quantitative easing globally, what happens if the rebound is a little bit faster than we're all thinking? Those rates spike up a little bit higher. That certainly wouldn't be good.
And then third, it's really around the virus. And we're not 100% sure whether new strains are going to be completely able to be offset with the new vaccine. So there are some risks in here for sure. But I think to me, the biggest risk is that the boom for the economy in 2021 is bigger than what we're thinking.
- You know, it's interesting because when you think about your risks for '21, I think we're so consumed I think with people watching the mainstream media right now about what's happening in the States, I think it's notable that you're not saying that, like US politics.
- Yeah and, Kim, you know there are a lot of things to be worried about. What you see happening in the United States is frankly a terrible outcome in the political process. There's all kinds of reasons to be pessimistic and concerned about today. It's tough for anyone. We're working from home. Economies are shut down. There's a second or third wave. The economic headlines aren't great. The health care headlines are really bad.
But again, it's-- the reason I'm thinking ahead is because that's how the market thinks. And there is this solution. These vaccines, 90%, 95% efficacious, not a silver bullet. It's going to take time. But I think this is a much different scenario if we didn't have this data.
And don't forget there are a number of other companies who are working on this, and I'm hopeful the next three or four weeks, we're going to see yet again large scale trials, large scale data come out to say, look, there's even more vaccine supply coming.
- Dave, we're going to leave it there. It's always a pleasure. Thanks so much.
- Thanks very much, Kim.
[MUSIC PLAYING]
