Who would have thought that 2021 would have started off in a more interesting manner than 2020 finished?
As we move into the new year, we are starting to see the first shockwaves post the initial hit of Covid-19. February sees the first full month of Joe Biden’s presidency, and there is a lot of speculation over how this may affect the markets.
Our friends at Russell Investments predict the following asset class implications for 2021:
- Equities should outperform bonds.
- Long-term bond yields should rise, though with steeper yield curves likely limited by continued low inflation and central banks remaining on hold.
- The U.S. dollar will likely weaken given its countercyclical nature.
- Non-U.S. equities to outperform given their more cyclical nature and relative valuation advantage over U.S. stocks.
- The value equity factor to outperform the growth factor. *(1)
Tracking changes like these is complicated; this is why we carefully consider the investment vehicles we choose for you. They monitor, evaluate, and reposition on a regular basis in an attempt to reduce risk and protect returns.
We are excited by talking about these challenges way before they happen. Cautiously optimistic has always been our stance. Tongue-in-cheek, we say, “We like to keep our clients wealthy, not make them rich.” Most of you have been clients through the Global Financial crisis and several other potholes. Markets this time have had many reasons to continue to shine and our long-term view is stay focused and stay invested. When there are life changes or a need to alter goals then that is where we will be there to help.
Despite these perceived challenges currently facing the stock market and our caution concerning post-COVID-19 vulnerability there are three important takeaways that will help us remain focused and calm.
- This is a pothole not a cliff. There is a lot to suggest that this is merely a pocket of froth and speculation, not a signal of a broader market bubble. Overall, stock market valuations are elevated but not at unreasonable or unsustainable levels, in our view.
- The positive fundamental outlook has not changed. A look under the hood of this dip suggests the broader outlook has not changed. The economy is still poised to gain momentum later this year.
- Market sprints need an occasional breather. It shouldn’t be lost that the market was at a record high in mid-January. The recent dip leaves equities roughly 3% off of those highs and the market is up more than 60% in the past 10 months with little volatility along the way. *(2)
Although these insights are purely informative if you, or your friends and family, have any questions or concerns then please be in touch with our team. We always encourage this before making any major financial decisions and remember the value of units can fall as well as rise, and you may not get back all of your original investment.
*(1)Global Market Outlook 2021, Russell Investments
*(2) Market Pulse, Edward Jones