Inequalities that existed before this crisis have been amplified by it. One place where this is
prominent is in markets. Interest-rate sensitive sectors are seeing a marked outperformance due
to their heightened sensitivity to liquidity. Technology has also benefited from the accelerated
shift towards remote working and a greater demand for online consumption. Manufacturing
benefits from lower rates and increased liquidity and is experiencing a V-shaped recovery. This
is closely aligned to the performance of highly-cyclical semis stocks (top-left chart). Semis are
benefiting both from liquidity and the shift to technology: ~50% of semis sales are for computing
and wireless communications. A further 10% of chip sales are for autos, also a beneficiary of
easy money, along with housing. The top-right chart shows autos and homebuilding stocks are
positioned to do well over the next year due to the rise in excess liquidity.

The recovery overall, though, is set to be frustrated from here. The bottom-left chart shows the
partial bounce in our US LEI, but this is likely to peter out as demand is hindered by the ongoing
threat of rolling lockdowns. This will be the case as long as policymakers react to resurgences
in cases. If, for instance, they dampened their reaction function and instead focused more on
hospital admissions (this entails health risks, but a trade off policymakers may make for a more
robust economy), a speedier recovery may result, allowing the market overall to start moving
higher again (last chart).

Source: Bloomberg, Macrobond and Variant Perception