Whatâs Going On Here?As governments and central banks scrambled to manage their economies, investors were just scrambling to place a wager on record-breaking global stock and bond markets. What Does This Mean?Global stocks had a scare when Covid-19 first hit, falling more than 20% from their previous high into a âbear marketâ. But they bounced back with a vengeance when tech stocks â which account for roughly a quarter of the US stock market â got a boost from pandemic-driven trends like remote working and online shopping. By the end of the year, Chinese stocks were up roughly 25% and US stocks were up 15% â while tellingly, Europeâs less tech-heavy markets were down 5%.
Bonds had a good year too: their prices climbed and yields dropped as central banks bought them up in their droves. So much so, in fact, that a record $18 trillion of government and corporate bonds offered negative yields by the end of the year. In other words, investors wanted them even though they were guaranteed to lose them money⊠Why Should I Care?For markets: Whose high is it anyway?
No sooner have investors digested todayâs goings-on than they try to put a price on next yearâs potential, which might partly explain stock marketsâ recent record highs. 2021, after all, should be ripe for a dramatic bounce back: analysts are expecting average US company profits to grow by 22% â which, if proved right, would be the highest profit growth on record since 2010 (tweet this).
The bigger picture: The big rotation.
There was a lot of debate this year around when cheap-looking âvalueâ stocks â in bruised sectors like cars, energy, and banking â would overtake âgrowthâ stocks like those of Big Tech. And the widespread rollout of the vaccine could be that âwhenâ: itâs already given investors more confidence in a growth rebound next year, which has historically been most beneficial to economically sensitive value stocks. | 