- Sir Martin Sorrell thinks that there will be a global economic recovery in 2021
- Vaccine newsflow suggests a turning point in the first quarter of next year
Sir Martin Sorrell is convinced that next year is going to be a relatively healthy one, despite the carnage of the March sell-off and the lingering casualties across global markets. Indeed, the ex-CEO of advertising giant WPP (WPP) and current chairman of S4Capital (SFOR) is bullish on 2021 for three key reasons:
1. Vaccine developments
“We’ll have a vaccine that kicks in: better therapeutics and better testing,” predicts Sorrell. His expectations are not misplaced: this week US drug-maker Pfizer (US:PFE) announced that its vaccine candidate was 90 per cent effective, sending global markets into a frenzy, with the FTSE100 enjoying its best session in almost six months. For some time now the market has been waiting for a sign of a breakthrough, as pundits predicted a vaccine would emerge in the first quarter of next year. Even if Pfizer’s candidate falls through, there are a number of other drugmakers in the race: including the UK’s AstraZeneca (AZN) and GlaxoSmith Kline (GSK).
2. GDP forecasts
“I think 2021 will be a very strong year,” claims Sorrell, citing growth forecasts from Goldman Sachs. Indeed, the bank predicts that while global gross domestic product (GDP) growth will sit at 3.9 per cent in 2020, it will rebound to 6 per cent in 2021, followed by 4.6 per cent in 2022.
But Goldman’s forecast is above the market’s consensus view on most major economies in 2021, and everywhere in 2022. A more V-shaped recovery is by no means certain: indeed, the Organisation for Economic Cooperation and Development (OECD) has warned that it believes the path to recovery is still highly uncertain and vulnerable to new waves of infections.
Of course, the bounceback narrative would work in the favour of Sir Martin’s firm S4 Capital, the digital marketing group he founded only a few months after he left WPP in 2018. The company has already seen its market value soar past £2bn as Sorrell, true to fashion, has been highly acquisitve, hoovering up smaller advertising firms across the world. Gross profits climbed by 23 per cent in the third quarter alone, and the company now has its ambitions set on doubling its organic top and bottom line within three years. So far that seems within reach, given that it has managed to secure three clients that will rake in more than $20m a year in just the past quarter.
Sir Martin is unsurprisingly less bullish on the outlook for traditional advertisers. “If they don’t grow next year on weak comparisons then they never will,” he says. “I think they’re going to continue to struggle because of their traditional base.” Indeed, WPP has not managed to fully recover from the initial March sell-off, with its shares still down by around 30 per cent year-to-date.
3. The US election
“The election result from a business point of view is pretty good,” says Sorrell, who cites the new balance between a Democrat-controlled House of Representatives and a Republican-led Senate (assuming that plays out, given the Senate run-off underway in Georgia). “It means we probably won’t have as much stimulus as we thought we were going to get...on the other hand, we probably won’t have as much tax increase.”
But the Democrat House could prove to be a problem for the US tech industry, which makes up about a fifth of the value of the S&P 500 - as well as a key part of S4 Capital’s client base. The party has already led an investigation into anticompetitive practices by companies such as Alphabet (US:GOOGL), Facebook (US:FB), Amazon (US:AMZN) and Apple (US:AAPL) - with Google already facing an antitrust lawsuit from the Department of Justice.
The Pfizer newsflow sent some of 2020’s work-from-home darlings tumbling: Zoom (US:ZM) and Peloton (US:PTON) dropped 17 and 20 per cent respectively on the day of the announcement, while airlines rallied. The market is clearly excited at the tangible prospect of a vaccine - but approval is only one step in a long road back to a more stable public health environment. That is not to mention the logistical issues of transporting and administering a drug to the general population. In any case, Sir Martin, and the rest of the market, seem optimistic that we will not be doomed to live with coronavirus forever. Now is the time for investors to keep an eye out for recovery plays, as well as stocks they might need to ditch in the new year, at least those which have derived commercial benefits principally because of the lockdowns.
