Moderna stock plummeted on Biden’s support of waiving vaccine patent protections, but that backing won’t have a material impact on the company, Morgan Stanley says

Moderna covid vaccine coronavirus
Moderna’s COVID-19 vaccine won emergency use authorization from the FDA in December 2020.

  • Moderna shares have dropped sharply since the Biden administration on Wednesday voiced support for waiving patent protections on COVID-19 vaccines.
  • Morgan Stanley said it doesn’t see the US’s waiver support as having a material impact on Moderna’s business.
  • Moderna’s management had indicated it wouldn’t enforce its vaccine patent during the pandemic, says Morgan Stanley.
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Moderna shares fell sharply for a second session Thursday after the US said on Wednesday it supports waiving intellectual property protections for COVID-19 vaccines. The stock has now declined as much as 23% since Monday’s close after a 7% drop on Tuesday.

But Morgan Stanley said it doesn’t see a waiver materially hurting the biotech company’s business.

The Biden administration supports a waiver “in service of ending this pandemic,” even as it “believes strongly in intellectual property protections,” US Trade Representative Katherine Tai said in a statement Wednesday.

A waiver would allow other countries to make vaccines from Johnson & Johnson, Pfizer, and Moderna without fearing sanctions at the World Trade Organization.

While the US’s waiver support generates “a negative headline, we believe the practical impact is limited,” on Moderna’s business, said Matthew Harrison, an equity analyst at Morgan Stanley, in a note published Thursday.

He said Moderna’s management had previously indicated it wouldn’t enforce its intellectual property patent during the pandemic. Meanwhile, the investment bank said it doesn’t believe the WTO has any mechanism to force Moderna’s management to teach other manufacturers how to make its vaccine, which suggests no change in the status quo.

“Finally, we believe any new manufacturing operation could take 6-9 months to scale, effectively limiting the impact of other manufacturers,” wrote Harrison.

Shares of Pfizer were off by nearly 3% on Thursday and BioNTech was down by more than 2%.

“You have this political pressure to share patents with every pharmaceutical company. Then you have the other side of it, which is these pharmaceutical companies need to be motivated to always do research and development. Even though there was a pandemic and a humanitarian crisis, there is still a cost,” Hilary Kramer, chief investment officer at Kramer Capital Research, told Insider.

“Whether it’s Pfizer or Moderna or BioNTech, they have a responsibility to their shareholders and they also have a responsibility to continue to have a pipeline of products and to know [that R&D] is going to pay off,” she said. “We need to watch that – that could have a greater impact on pharmaceutical stocks.”

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The reopening is not priced in equally and 3 stock sectors in particular are primed for more upside, Morgan Stanley says

2021 04 16T114221Z_1773665257_RC2ZWM9JH876_RTRMADP_3_MORGAN STANLEY RESULTS.JPG
People take photos by the Morgan Stanley building in Times Square in New York on February 20, 2020.

  • Morgan Stanley says the reopening of the economy brings “significant uncertainties” over where to invest.
  • “Reopening does not mean a full return to pre-Covid consumptions,” the analysts said in a note.
  • The bank said it sees cyclical upside in three sectors: banks, capital goods, and materials.
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With the US economy on track for a summer rebound thanks to steady vaccine rollout and the landmark stimulus aid package, uncertainty about where investors should park their money abounds, Morgan Stanley said in a note Wednesday.

“Exiting the Covid-economy comes with significant uncertainties, and ‘reopening’ does not mean a full return to pre-Covid consumptions,” analysts led by Adam Virgadamo, CFA, said in a note.

With global equities near all-time highs after being pummeled by a year of the global pandemic, Morgan Stanley said it now sees a cyclical upside in three sectors: banks, capital goods, and materials.

The analysts developed a tool that uses a framework to analyze stocks in the US, Europe, and Japan. The process found that certain cyclical stocks which have large overlaps with reopening plays have “rerated relative to the broader market such that a recovery seems reasonably well priced.”

  • Europe: Banks and Capital Goods
  • Japan: Autos, Goods, Transports, and Materials
  • US: A more diversified mix though leaning toward Energy, Banks, Capital Goods, Airlines, a mix of Tech

Morgan Stanley said that much of the reopening is priced in, although not equally across cyclical sectors. Discretionary and industrials, for instance, are aggressively pricing recovery and reopening while energy, financials, and materials have been slower to do so.

The cycle reset, the bank added, also lowered the premium on defensive stocks, with health care among the most defensive for stock opportunities. Pockets of real estate, such as offices, meanwhile continue to face challenges.

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These 3 sectors are set to boom on the back of Biden’s massive infrastructure spending plan, Morgan Stanley says

President Joe Biden has framed his infrastructure plan as a means of strengthening democracy and undermining autocracy.

  • President Biden has proposed around $4 trillion in infrastructure spending in two separate plans.
  • Morgan Stanley laid out three sectors set to benefit from the spending in the “Thoughts on the Market Podcast.”
  • The healthcare, clean energy, and cement/steel sectors were the investment bank’s top picks.
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Morgan Stanley highlighted three sectors set to benefit from President Biden’s infrastructure plan in the “Thoughts on the Market Podcast” with Michael Zezas on Wednesday.

President Biden unveiled his $2.3 trillion American Jobs Plan in late March and is reportedly readying another spending package that would bring the administration’s total infrastructure spend to roughly $4 trillion.

Morgan Stanley said the cement and steel, clean energy, and healthcare sectors will be the top three beneficiaries of the historic cash infusion.

This isn’t the first time the investment bank has recommended a group of stocks based on the recent rise in infrastructure spending.

In an early April note to clients, Michael Wilson, Morgan Stanley’s Chief Investment Officer, said he believes “investors should consider a mix of traditional cyclicals and new beneficiaries that will gain from the combination of strong economic growth, as well as federal initiatives to bring US infrastructure into the 21st century.”

Clean Energy

The extension of key green energy tax credits coupled with potential new tax credits from Biden’s spending plan are set to buoy the clean energy sector moving forward, according to Morgan Stanley.

The president’s plan also contains over $170 billion for electric vehicle technology, which Morgan Stanley says will help to bolster the sector despite high valuations.

In a note to clients on April 9, Wedbush’s Dan Ives echoed similar sentiments to the investment bank, saying that he believes Biden’s plan will bring about a “green title wave” for electric vehicles.

“The lifting of the 200k EV tax credit ceiling (restored to Tesla and GM) and a likely $10k+ EV tax rebate will be a major catalyst for EV growth in the US,” Ives said.

Cement and Steel

Morgan Stanley also highlighted the obvious beneficiaries of the infrastructure spending, cement and steel companies.

With $1 trillion set to be spent on transportation, water, and affordable housing, analysts at Morgan Stanley believe we are headed for an “infrastructure supercycle.”

The investment bank said over 200 million tons of cement will be used due to the infrastructure spending alone.

However, some market commentators question how much of the spending package has already been priced in.

When asked about which sectors may benefit from infrastructure spending, Burton Hollifield, a professor of finance at Carnegie Mellon University, told Insider that he believes much of the infrastructure spending bill has already been priced into equities.

Stock prices in the sector appear to back up Hollifield’s belief. Shares of US Concrete have already jumped 62% in 2021, and US Steel has followed suit, with shares rising 33% year-to-date.


Finally, Morgan Stanley analysts said they believe the healthcare sector will get a boost from President Biden’s new “human infrastructure” spending.

These “human infrastructure” measures include the expansion of affordable care act subsidies and a possible lowering of the medicare age.

Morgan Stanley says these changes would be a “fundamental positive for larger healthcare providers” as there will be more healthcare business to do overall, and larger healthcare companies would have the “scale to engage profitably.”

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Bill Hwang lost around $20 billion in 2 days when his Archegos fund imploded, report says

Bill Hwang
Bill Hwang’s Archegos Capital Management imploded in March.

Bill Hwang built up a fortune of around $20 billion through savvy investments, but then lost it all in 2 days in March as his Archegos investment fund imploded after some of his bets went awry, a report has said.

Hwang, an alumnus of famed hedge fund Tiger Management, took around $200 million in 2013 and turned it into a $20 billion net worth by betting successfully on technology stocks, Bloomberg said in the most detailed look at Archegos’ finances yet.

But it all came crashing down at the end of March when some of Hwang’s highly leveraged bets started to go wrong and his banks sold huge chunks of his investments. The sales knocked around $35 billion off the value of various US media and Chinese tech firms in a day.

Bloomberg reported that Hwang’s early investments through his Archegos Capital Management family office included Amazon, travel-booking company Expedia, LinkedIn and Netflix, the latter of which reaped a $1 billion payday. Bloomberg cited people familiar with Hwang’s investments.

Hwang’s bets at some point shifted towards a broader range of firms, in particular media conglomerates ViacomCBS and Discovery. He also loaded up on Chinese tech companies such as Baidu and GSX Techedu.

Archegos’ investments powered it to a strong final quarter of 2020, with many of the stocks it held jumping more than 30%.

But the ViacomCBS bet would become particularly problematic for Hwang. It started to tumble during the week starting March 22, causing Archegos’ prime brokers – the major banks who lent it money and processed its trades – to demand more money as collateral, known in the business as a margin call.

With Hwang unable to put up the cash, Morgan Stanley sold around $5 billion of Archegos’ holdings at a discount, according to Bloomberg. Goldman then followed suit, selling billions of dollars of companies’ stock.

Some banks weren’t so fast, however, with Credit Suisse and Nomura left nursing estimated losses of $4.7 billion and $2 billion respectively.

A key reason that Hwang’s wealth collapsed so spectacularly is that he used large amounts of leverage. That is, Archegos borrowed lots of money to fund his investments, meaning it faced large losses when they went bad.

Gerard Cassidy, US bank analyst at RBC Capital Markets, told Insider in March: “Leverage is always a two-edged sword. In a bull market when prices are rising it enhances your returns. And then in a falling market, like you just saw in this particular case, it cuts your head off.”

Archegos was unavailable for comment but spokesperson Karen Kessler told Reuters at the end of March: “This is a challenging time for the family office of Archegos Capital Management, our partners and employees.”

“All plans are being discussed as Mr. Hwang and the team determine the best path forward,” she said.

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Not owning Tesla stock is the greater risk ahead of massive infrastructure package, Morgan Stanley says

Tesla Shanghai China Factory
Tesla TKed Wall Street’s expectations.

  • Morgan Stanley said Tesla will have a huge advantage ahead of President Biden’s infrastructure bill.

  • Biden’s $2 trillion proposal carved out $174 billion for the electric vehicle sector alone.
  • If this passes, the bank said this would exacerbate Tesla’s advantage over other players.

  • See more stories on Insider’s business page.

Among the companies that stand at an advantage ahead of President Joe Biden’s massive infrastructure bill is Tesla, according to Morgan Stanley analysts, and owning the stock they say may be a bigger risk than not.

Biden’s $2 trillion infrastructure proposal carved out $174 billion for the electric vehicle sector alone, as the president aims to better equip American companies to compete with China, which is currently the market leader in the electric vehicle space.

Analysts at Morgan Stanley led by Adam Jones said in a note published Wednesday that Biden’s bill will increase Tesla’s advantage over legacy players and new entrants altogether.

The policy used to accelerate sales of electric vehicles will slow sales of internal combustion engine cars, the analysts said.

The analysts did warn that the build-out may follow a volatile and non-linear path.

“It will likely be complicated by a labyrinth of national and local laws that will present advantages and disadvantages to various automakers, depending on the year that you choose to analyze,” they said. “Put it all together and we believe auto investors face greater risk not owning Tesla shares in their portfolio than owning Tesla shares.”

The electric carmaker last week revealed that 184,800 vehicles were delivered and 180,338 cars were produced for the first three months of 2021, despite major production and supply-chain headwinds. Tesla in the final quarter of last year delivered 180,570 cars.

Wedbush analyst Daniel Ives said the first-quarter results were a “paradigm changer” and show that the global pent-up demand for Tesla’s Model 3 and Y is just about to hit its next stage of growth.

The strong start of the year for the company proved that founder Elon Musk’s efforts to shore up global operations in Europe and China are paying off.

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Morgan Stanley sold $5 billion in Archegos’ stocks just before wave of sales hit rivals, report says

Barclays Traders NYSE
Traders work on the floor of the New York Stock Exchange.

  • Morgan Stanley sold about $5 billion in shares that Archegos Capital had to unload, with the sales made the night before a massive securities sale, CNBC reported Tuesday.
  • Sources told CNBC the investment bank didn’t tell the buyers that the shares it was selling would be the start of an unprecedented wave of securities sales by some investment banks.
  • Archegos collapsed after Wall Street banks forced the firm to sell more than $20 billion worth of shares after failing to meet a margin call.
  • See more stories on Insider’s business page.

Morgan Stanley sold about $5 billion in shares of now-collapsed hedge fund Archegos Capital Management the night before a massive securities sale took place, CNBC reported Tuesday, citing unnamed sources familiar with the matter.

Archegos’ biggest prime broker sold shares in US media and Chinese tech names to a small group of hedge funds late Thursday, March 25, the report said, adding that Morgan Stanley sold the shares at a discount and told the hedge funds that they were part of a margin call that could prevent the collapse of an unnamed client.

According to the report, sources said the investment bank didn’t tell the buyers that the basket of shares would be the start of an unprecedented wave of tens of billions of dollars in securities sales by Morgan Stanley and five other investment banks starting the next day, on Friday.

The sources told CNBC that Morgan Stanley had Archegos’ consent to shop around its stock late March 25.

European lender Credit Suisse said Tuesday it will likely suffer a $4.7 billion charge to first-quarter profits after Archegos failed to meet its margin requirements.

Bill Hwang, who in 2013 founded Archegos as a family office, used borrowed money to make large bets on some stocks until Wall Street banks forced the firm to sell more than $20 billion worth of shares after failing to meet a margin call.

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Bank stocks could jump 45% on rising bond yields and attractive relative value, Morgan Stanley says

FILE PHOTO: A sign is displayed on the Morgan Stanley building in New York U.S., July 16, 2018. REUTERS/Lucas Jackson/File Photo
FILE PHOTO: A sign is displayed on the Morgan Stanley building in New York

  • Bank stocks could jump as much as 45% on a range of macroeconomic factors, according to Morgan Stanley.
  • “Banks have been a major beneficiary of the value rotation currently underway, with the S&P 500 Banks industry group up 19.9% YTD,” the note said.
  • Historically, bank stocks have benefitted from rising yields and a steepening curve, the note added.
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Bank stocks could jump as much as 45% on various macroeconomic factors, from a steepening yield curve to attractive relative valuation that supports the sector’s outperformance, according to Morgan Stanley.

In a note published on Wednesday, the bank listed five factors that could drive the cohort higher, especially on the expectation of a rotation to value stocks rotation continuing in the near term.

“Banks have been a major beneficiary of the value rotation currently underway, with the S&P 500 Banks industry group up 19.9% [year-to-date], outperforming the broad S&P 500 index by 15.4%,” the note, led by quantitative strategist Boris Lerner, said.

Higher rates, strong economic growth, and fiscal stimulus all contribute to the growth of support value stocks, the note said. The analysts are seeing a a 20%-45% relative upside in the base case scenario.

(1) Rising yields

Banks have historically benefitted from rising yields and a steepening curve, the note said. As yields are expected to continue going up, which will result in a steeper yield curve, bank stocks are expected to keep performing well.

(2) Attractive relative valuation

Banks trade at a significant discount to the market, the note said, and because valuations are near median levels, market valuation at this point looks relatively high. Banks are cheap relative to the market, the note said. The analysts added that the current macroeconomic environment is supportive of value stocks, which have been outperforming growth stocks since the fourth quarter of 2020.

(3) Bank earnings are set to increase

Five key factors are driving EPS growth for banks, Morgan Stanley said. They are: (1) a steepening yield curve due to rising interest rates, (2) high GDP growth, which will boost loan growth, (3) lower credit losses, (4) accelerating job growth, and (5) accelerating buybacks as earnings grow.

(4) Light positioning

Exposure to financials among equity hedge funds is at a 10-year low, Morgan Stanley said, despite the recent rally in financials stocks.

“Active long-only managers are also underweight the sector relative to passive funds,” the note said.

(5) Momentum

The recent rally in financial stocks is expected to increase the net exposure of financials within the S&P 500 from -2% to +15% in the next 3 months, the note said. “Currently, 12-month S&P 500 momentum strategies are net short financials,” the note added. “Shorter-term momentum strategies, based on 9-month or 6-month returns often lead the 12-month momentum, and these portfolios currently have financials at 15% to 23% (highest exposure relative to other sectors).”

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Morgan Stanley says the ‘extraordinary outperformance’ of small caps is coming to an end and the sector will feel cost pressure as the economy reopens

FILE PHOTO: A sign is displayed on the Morgan Stanley building in New York U.S., July 16, 2018. REUTERS/Lucas Jackson/File Photo
FILE PHOTO: A sign is displayed on the Morgan Stanley building in New York

Small caps and cyclical stocks have outperformed during the recession, but their extraordinary run will end soon, Mike Wilson, chief US equity strategist, said on Morgan Stanley’s “Thoughts on the Market” podcast late on Monday.

Since last April, the Russell 2000 index of small-cap stocks has outperformed the S&P 500 and Nasdaq 100 by 50% and 40%, respectively, Wilson said.

Small caps are those stocks that have a total market capitalization of between $250 million and $2 billion. They are likely to be disproportionately impacted by growing cost pressures during economic recovery. These come from concerns about labor availability and supply-chain shortages and are highlighted in recent purchasing manager surveys.

The Russell 2000 is up by around 19% year to date and has gained over 110% in the last 12 months. The S&P 500 and the Nasdaq 100 have risen by 5.7% and 4.4%, respectively so far this year.

The index has been one of the best-performing worldwide in the last year. It has even outperformed the tech-heavy Nasdaq 100, which has gained 75%, thanks to triple-digit percentage gains in the likes of electric vehicle maker Tesla, or video call app Zoom.

Morgan Stanley has therefore downgraded small caps to reduce risk. “Now, we think that period of extraordinary outperformance and earnings revisions and valuation expansion may be coming to an end,” Wilson said.

The bank upgraded the sector last April based on the assumption that “we would experience a V-shape recovery in the economy, and the government subsidy of the unemployment cycle would accrue to the bottom line of corporations, especially small caps”.

Because small caps tend to be very closely linked to the real underlying economy, they gained far more than bigger-caps, which can often be more subject to the health of global trade, exchange rates and other external factors. With the bounceback from the depths of coronavirus-induced recession, small caps enjoyed an even bigger rally and that may be starting to level out, Wilson said.

“The equity market is doing exactly what it should be at this stage of the recovery” Wilson said. Market-based interest rates have shot up significantly since the start of the year, as investors price in the prospect of a rapid pickup in growth, which might mean some correction in equity valuations in 2021.

“This doesn’t mean smaller cap company stocks can’t work; however, the risk-reward at this point is no longer favorable,” Wilson said.

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The pullback in clean tech stocks presents a ‘rare buying opportunity’, Morgan Stanley says

Sunrun solar installation
Sunrun installers put panels on a home in Sunnyvale, California

  • Morgan Stanley told clients on Wednesday that the clean tech stock pullback is a buying opportunity.
  • Analysts upgraded a basket of clean tech stocks to “outperform”, citing “strong growth in renewables and energy storage.”
  • Morgan Stanley’s US power supply mix forecast says 40% of energy output will be renewable by 2030.
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The recent pullback in clean tech stocks presents a “rare buying opportunity” according to analysts at Morgan Stanley.

In a note to clients on Wednesday, Morgan Stanley analysts led by Stephen C. Byrd said they are recommending clean tech stocks with “strong growth and cash flow” after a recent fall in share prices.

The analysts upgraded a basket of stocks from the sector including AES Corporation, Atlantica Sustainable Infrastructure, Solaredge Technologies, TPI Composites, and SunRun to overweight in their note.

The team cited “strong growth in renewables and energy storage given favorable economics and further cost declines” as the main reason for their upgrade.

The analysts also said the trend towards increased environmental, social, and corporate governance (ESG) spending would be a positive for the clean tech sector moving forward, and argued ESG capital is “being deployed on leaders in clean energy” like the names they’ve upgraded.

The team from Morgan Stanley added that they believe federal support in the form of clean energy and infrastructure legislation is an “under-appreciated upcoming catalyst” for the clean tech sector.

Additionally, according to Morgan Stanley’s US power supply mix forecast, there will be a huge increase in renewable energy use over the next decade from 12% of current power output to roughly 40% by 2030.

Still, the analysts reduced their price targets for the sector somewhat due to “a higher cost of capital given a rising rate environment and higher equity risk premium.”

The analysts noted that many investors believe valuations are high in the sector after a run-up in share prices in 2020 and into 2021. However, according to the team, after the recent pullback there are “many Clean Tech stocks reflecting growth that is far below their rapid, multi-decade growth outlook.”

The analysts also noted that “corporate and residential consumer interest in clean energy and energy storage continues to rise substantially.”

The clean tech sector has been booming of late. So much so that Global X started the CleanTech ETF or CTEC, last October to allow investors to bet on the sector as a whole. The ETF has posted a 50% return since inception.

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US GDP will return to pre-pandemic highs by the end of March, Morgan Stanley says

Mall coronavirus retail
  • The US economy will grow 8.1% in 2021 as the coronavirus threat fades for good, Morgan Stanley said.
  • GDP will return to pre-pandemic levels by the end of the first quarter, the bank’s economists added.
  • Unemployment will fall to 4.9% in 2021, the bank said, still above the rate from before the crisis.
  • Visit the Business section of Insider for more stories.

Morgan Stanley has lifted its forecasts for 2021 economic growth in the US, citing a collection of encouraging trends for its brighter outlook.

Gross domestic product is now expected to grow by 8.1% on a fourth-quarter by fourth-quarter basis, up from 7.6%, the team led by Ellen Zentner said in a Tuesday note. Growth for 2022 was revised 0.1 points lower to 2.8%.

The bank also expects US GDP to fully rebound to its pre-pandemic level by the end of the current quarter. The output gap – a measure of how actual growth compares to maximum potential growth estimates – is expected to turn positive and reach 2.7% by the end of the year as the economy roars out of its virus-induced downturn. That would be the highest reading since the 1970s, according to the Bureau of Economic Analysis.

Economic reopening, a faster rate of vaccination, and stronger job growth all contributed to the adjustments, the economists said. New stimulus likely to win final approval in the House on Wednesday is in line with what the bank expected, but its earlier timing and the pace of first-quarter growth also added to optimism, the team added.

Morgan Stanley sees the unemployment rate tumbling further, though taking longer to reach lows seen before the pandemic. The gauge is projected to average 4.9% by the fourth quarter of 2021, down from the previous 5.1% estimate. Unemployment will sink further to 3.9% over the following year, the team said.

“A more robust return to work will be somewhat offset by rising labor force participation, but economic activity is strong enough to still generate a sharp decline in the unemployment rate,” the bank added.

The faster recovery will come at a cost, and Morgan Stanley’s latest inflation projections signal price growth will firm up later this year. Higher prices for rent, healthcare, and staples will lift inflation to 2.6% in April and May before it eases to 2.3% at the end of the year, according to the economists. Inflation will hold at the elevated level well into 2022, meeting the Federal Reserve’s above-2% target.

Still, significant tightening of monetary conditions isn’t likely to take place until 2023, the bank said. Policymakers will likely reiterate their dovish guidance when they meet next week and project near-zero rates staying at least through 2022. Yet the recovery and related effects on inflation and hiring will lead the Fed to begin shrinking its asset purchases in January 2022, Morgan Stanley said.

“By the middle of the year we expect the cloud of COVID will have thinned and the recovery will have picked up meaningfully enough that the Fed will see it as appropriate to begin taking its foot off the gas pedal,” they added.

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