John Hancock: Where to Invest as Economy Shows Promising Signs

In fixed income, "emphasizing quality investment-grade corporate and government bonds may outpace lower-rated issues," John Hancock said, noting it has a 12-18 month view of "neutral" for fixed income. "Returns on short duration fixed-income strategies are likely to remain low," it predicted.

"On the fixed income side, we continue to prefer a modest credit bias to achieve better income then the paltry 1.2% of the Barclays US aggregate bond index and maximize the benefit of Fed support," Miskin told ThinkAdvisor. "We are targeting A, BBB, and selective parts of BBs parts of the corporate bond credit spectrum," he said, adding: "The Fed has only used a drop in a bucket this far relative to the $750 billion available in credit facilities. However, we do not believe that investors are getting compensated enough to be overweight high yield at these spread levels."

In early 2019, the firm "upgraded our fixed-income view from slightly bearish to neutral, where it remains amid a challenging environment for global growth," the report said. "In Q1, we increased quality further by upgrading U.S. Treasuries from neutral to slightly positive and further increasing our overweight in mortgage-backed securities," it said, adding that in the third quarter that just started, "we've continued increasing quality by moving emerging-market debt to slightly negative from neutral."

Cash, meanwhile, "can't compete with investment-grade bonds as a long-term holding," the report said.

The U.S. equity market "exhibits better fundamentals relative to non-U.S. equities, as measured by return on equity and sector composition," the report said, adding:  "Embracing quality allows investors the chance to both participate and protect."

The firm continues to "advocate tilting portfolios to the quality factor based on a challenging earnings backdrop," Miskin told ThinkAdvisor. "Balance sheet strength and relatively insulated cash flows are two criteria we are focusing on."

Election Outlook

The election is only "starting to get on investors' radars, but November feels like a lifetime away given how impactful COVID-19 has been," Miskin told ThinkAdvisor.

"Historically, market returns in years where there is an incumbent running for reelection have been better than an average election year," he noted.

Meanwhile, "additional unemployment benefits are going to be coming off in a couple weeks," he pointed out, warning: "Further fiscal support will likely be needed," but predicted that will be "welcomed by the administration." The economy overall "will likely need continued support in the second half of the year," he said.

"As for after the election, reviewing market returns across presidential and Congress parties suggests no clear market winners or losers," he went on to say, adding: "The underlying economic trends and starting point of the market (taking over office after a large decline is best) tend to be way more important to markets than the political parties represented in Washington."

5 Other Highlights From John Hancock's Outlook

1. "Inflation will undershoot central banks' targets for a sustained period, keeping both policy rates and government bond yields at very low levels."

2. The firm does not see a need to chase high-yield bonds. "Fed policy continues to keep credit markets neutral to slightly positive," it said.

3. "A weaker U.S. dollar will help lift commodity prices and more cyclical sectors of the stock market."

4. "Returns on short duration fixed-income strategies will remain low."

5. "The fed funds rate is back to zero, and forward guidance suggests that it will remain there until at least 2022."

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