With the Covid-19 pandemic in retreat in some—but certainly not all—parts of the world, many investment markets were swept by a warm breeze of optimism in the second quarter. Risk assets continued to climb.
After clawing back its losses from the Covid-19 selloff throughout much of the second and third quarters, the high yield market moved solidly into positive territory for the year during the fourth quarter.
As long-term investors, we think it is important to take the right message from the strong broad market returns in 2020. As we’ve often cautioned, extrapolating trends is a risky way to commit capital, particularly when these trends reflect an extraordinary operating environment like that in 2020.
While equity markets continued their rebound from the depths of the Covid-19 selloff, leadership shifted as signs of a “reflation” trade that emerged in September persisted.
With the Covid-19 pandemic in retreat in some—but certainly not all—parts of the world, many financial markets have been swept by a warm breeze of optimism.
For gold, the second quarter of 2021 was a tale of two markets. April and May saw weaker-than-expected economic growth, rising geopolitical tensions between the United States and both Russia and China, and mounting concerns about inflation.
The rebound in business confidence during the second quarter was striking, though much of the anticipated improvement in economic activity may already be priced into markets.
The reflation trade that emerged in late 2020 persistedthrough the first quarter of 2021. A relatively steadyvaccine rollout in the US combined with a steadfastlyaccommodative Federal Reserve and ongoing fiscal support had investors hopeful of strong economic growth in 2021, to the benefit of economically sensitive stocks.
Those who think it’s possible to predict the future of economies and markets with any sort of accuracy would have a hard time explaining 2020—a year dominated by a black swan event that descended u