Volatility is the name of the game in March, and knowing the best way to play these drops can be the name of the game in 2021.
After a strong start to the year, the past few weeks have given way to exaggerated market fluctuations, as an increase in benchmark Treasury bond rates makes the speculative investments that prospered at the start of the COVID-19 pandemic in the US look like it. horrible expensive.
The 10-year note TMUBMUSD10Y,
yield rose briefly to 1.610% on Monday, exceeding the 1.609% level reached when Treasury bills sold strongly on February 25, according to Tradeweb. Yield rose for five consecutive weeks and rose from 0.915% in early 2020 to its current high level. Bond prices fall as yields rise.
The increase in rates was blamed for the violent rotation of high-growth stocks to more cyclical and value-oriented names.
The strong market fluctuations, indicative of the ongoing rotation, were on display Monday, with the Dow Jones Industrial Average DJIA,
rising to almost 32,000, while the S&P 500 SPX index,
fell 0.5% and the high-tech Nasdaq Composite COMP,
traded sharply lower.
Intraday and interday oscillations were also pronounced.
Against this background, Thomas Lee, founder of Fundstrat Global Advisors, offers seven reasons why investors should buy the falls that happen:
1. Washington is moving forward with the approval of a major fiscal relief package, and Treasury Secretary Janet Yellen has vigorously defended this.
2. The Federal Reserve has been vocal in its political position (the minutes of last week say) and the Fed is patient.
3. The US economy is reopening and the economic momentum is strong – very strong, JPMorgan’s chief economist Bruce Kasman says the US’s V-shaped recovery will soon overtake China. Wow.
4. There remains a substantial perception gap between policy / media makers and realized data from COVID-19, and closing this gap is positive for risky assets.
5. Generation Y is constantly allocating assets to stocks, and the increase in the opening of retail brokerage accounts is evidence of this.
6. Bonds are becoming less attractive vehicles of total return as inflationary expectations are increasing, increasing the attractiveness of stocks.
7. The Cboe VIX Volatility Index,
or VIX, should finally decline steadily in 2021 and, as we pointed out in our 2021 Outlook, periods of decreasing volatility have historically led to large equity gains, especially for cyclicals.