From stocks to Bitcoin, investors are betting that the “All Rally” will continue

The S&P 500 ended the year 68% off its March lows, after losing more than a third of its value in about a month. Yields on government bonds, which fall as prices rise, remain close to historic lows. Meanwhile, corporate bond yields also fell after the turbulence earlier this year. This means that many bond investors ended the year with gains. And U.S. crude oil prices are hovering near $ 50 a barrel after briefly falling below $ 0 for the first time in April.

After the sharp rise during a global pandemic, confidence was shown that central banks and governments would boost the global economy, many investors now expect the delivery of vaccines to buoy markets.

Sentiment indicators from organizations such as the American Association of Individual Investors show bearishness at multi-year lows. Meanwhile, tens of billions of dollars have recently been spent on exchange-traded funds and stock tracking. Both trends have preceded past setbacks, and have shown excessive optimism to some prudent investors. Some draw parallels with large gains in late 2017 and early 2018, before trade tensions and higher interest rates burst into markets.

“Investors can’t take enough risk, whatever it is,” said Emily Roland, co-investment strategist at John Hancock Investment Management. “The momentum is a powerful force and we don’t want to fight it.”

The firm maintains its investment in US equities in line with the benchmark it follows and favoring the economically sensitive industrial sector. At the same time, it is avoiding increasing its holdings and maintaining a neutral position in the bonds.

Analysts are still seeing possible speed bumps on the horizon, including a recent surge in coronavirus cases and a couple of Georgia runoff races this week that will determine which party controls the Senate under President-elect Joe Biden. Democrats who gain control could raise concerns about higher taxes for companies and investors with capital gains, traders say. Betting on higher tax spending can also hurt bonds and send higher returns.

Still, many observers still expect ultra-light interest rates to continue to support bonds, while pushing investors to get higher-yielding assets. With many US technology stocks registered, many investors buy shares of companies, commodities and shares of economically sensitive companies in emerging markets, all below their highs.

Its gains show optimism that the economy will prosper in the second half of 2021, even if the next few months offer obstacles to recovery.

“We really encourage our clients to look beyond” the turmoil projected during the first half of 2021, said Meghan Shue, head of investment strategy at Wilmington Trust. The firm increased its investments in US equities and emerging markets in recent months.

Companies including Apple Inc.

who benefited from the stay-at-home trend ended the year with astonishing market values, while everything from electric car maker Tesla Inc.

to copper producer Freeport-McMoRan Inc.

has also published large returns.

This underscores the growing breadth of the rally, but some high projections for both the technology sector and more growth-sensitive stocks remain a concern for some money managers.

“Expectations on certain segments are too baked,” said Lee Baker, president of Apex Financial Services in Atlanta. He advises customers to favor banks and cheaper travel-related actions in the new year.

Fund managers surveyed by Bank of America last month said they had less cash than benchmarks they have been tracking for the first time since May 2013, another indication that investors are shifting money to market shares. riskier. Many respondents have increased their investments recently in areas such as emerging markets.

“These markets have much more potential for recovery,” said Michael Kelly, global head of multiasset at PineBridge Investments. It has been favoring emerging markets as well as French and Spanish stocks in recent months, believing that a rise in global growth, aided by government stimulus, will help them outperform.

Investors have been especially encouraged by recent economic data showing the Chinese economy advancing after the country largely contained coronavirus, an advantage for other emerging markets and commodity producers. Analysts expect the United States and Europe to catch up.

Even with the worsening pandemic in these regions, economic data has remained largely stable, with the deployment of vaccines giving more confidence to consumers and businesses.

This is also helping the sharp rise in stocks linked to sectors affected by the pandemic, including travel and leisure, but some investors are wary that these companies will not meet higher expectations as the recovery unfolds.

“You have to be careful in some of these reopening trades where sentiment is no longer priceless,” said Victoria Fernandez, chief market strategist at Crossmark Global Investments. It encourages faster-growing companies tied to technology infrastructure and expects their positions to increase.

Write to Amrith Ramkumar at [email protected]