Get updates on recent capital market data and trends, including possible expectations for future outcomes.
With the current benchmark bond yield just over 1%, there is little income buffer to protect bond investors against a rise in rates. It’s a different climate than bond investors are used to. Many may not be prepared for losses in their bond investments.
With the renewed stimulus program in place, we estimate growth in 2021 should accelerate to around 5.0% for the year, with Q1 growth up to an annual rate of 2.5%. That would be fastest pace of annual growth since 1984.
Last weeks near 2% rally in the face of the events in Washington D.C., rising bond yields and signs that the economy is slowing was further evidence of the optimistic leaning of investors. Equity funds have seen record inflows over the past two months at nearly $200 billion, after showing $125 billion of outflows during last summer
The primary drivers of market strength continue to be optimism surrounding the vaccines and the benefits from the latest round of fiscal stimulus. The S&P 500 gained 68% from the March low after losing more than one-third of its value in less than a month, finishing the year with a return of 18.4%, the sixth-best performance in the past 20 years.
Stocks are up around 15% for the year-to-date, despite an estimated 4% decline in GDP growth for 2020. The decoupling of stocks from the economy is not unusual. What is unusual is the market’s year of strong performance in 2019 in advance of this year’s recession.
Investor positioning is reaching excessive levels, with a record 22 million call options traded daily over the last month. The Bank of America Global Fund Manager Survey showed respondents are underweight cash for the first time since 2013 and are the most bullish on stocks and commodities since 2011.
