It’s not surprising that Q1 of 2021 was good for equities, the question is whether the optimal conditions that drove stocks higher will move from the front windshield to the rear-view mirror during the remainder of this year. Before we assess that probability, let’s review the quarter that marked the anniversary of COVID-19.
Another action-packed month in markets saw bond yields spike, oil soar and all North American indices deliver solid returns despite the sea of red during the last week of February. Once again, the funds at Forge First profitably navigated these stormy waters.
Last month’s 2021 Market Lookahead commentary (December Commentary) included the text, ‘we continue to be of the view that the near-term setup for stocks remains good given the ‘market nirvana’ combination of open-ended stimulus and the pending recovery in earnings. While we expect cyclical and value-oriented stocks to outperform ‘high growth, momentum’ stocks during the next several months, neither do we foresee interest rates climbing enough to cause a stampede away from these heavily weighted securities.’ Our message today remains the same.
Happy, or should we say Hopeful, New Year has rarely seemed such an apt phrase. Obviously 2020 was a horrendous year for the majority of people, hence it’s good to have the last 10 months in the rear-view mirror. Entering 2021, hope that both society and the economy will evolve towards normalization in as timely a fashion as possible is a widespread theme. Ironically, it was a record year for financial assets, as Wall Street feasted while the rest of the world suffered. Governments everywhere tabled previously inconceivable amounts of fiscal stimulus, while monetary authorities definitely delivered on Draghi’s maxim of “doing whatever it takes”. Almost instantaneously this combination of adrenalin, estimated by Cornerstone Macro to equal 32.9% of global GDP, transformed the outlook for financial markets. In our minds, it was monetary action that mattered most for stocks.