2020 was an extraordinary year for financial markets. The pandemic was a black swan event that caused the biggest quarterly drop in global GDP and increase in unemployment since the Great Depression, and the drawdown in equity and credit markets was one of the fastest on record.

Yet, if the market meltdown was unprecedented, so was the recovery that followed. We believe the global economic recovery is poised to continue in 2021 and will gain strength once vaccines are broadly deployed and the world starts to return to normal social distancing.

As our latest Asset Allocation Outlook discusses in detail, we expect profit growth will accelerate, and the improvement in fundamentals should bode well for risk markets and cyclical assets in particular. We remain overweight equities in our multi-asset portfolios and select areas of the credit markets and have added exposure to more cyclically oriented sectors and regions.

To be sure, PIMCO expects the economic recovery will be a “long climb” with hiccups along the way (as we discussed in a June 2020 blog post), and it could take up to two years to reach pre-COVID-19 levels of global output. The two key swing factors – virus containment and fiscal policy support – will greatly influence the recovery process.