From Bitcoin shares, investors bet that “Everything Rally” will continue

The S&P 500 ended the year up 68% from 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 their historic lows. Meanwhile, corporate bond yields also declined after the turmoil at the beginning of the year. This means that many bond investors ended the year with gains. And crude oil prices in the U.S. are back close to $ 50 a barrel, after a brief drop below $ 0 for the first time in April.

After the surprising increase during a global pandemic has highlighted the confidence that central banks and governments would support the world economy, many investors now expect the delivery of vaccines to stimulate markets.

Sentiment gauges from organizations, including the American Association of Individual Investors, show down for several-year lows. Meanwhile, tens of billions of dollars have recently been invested in mutual funds and traded on a stock exchange that track shares. Both trends preceded previous setbacks, signaling excessive optimism for some cautious investors. Some are drawing parallels with extravagant gains in late 2017 and early 2018, before trade tensions and higher interest rates disrupted markets.

“Investors can’t risk enough – whatever it is,” said Emily Roland, co-head of investment strategy at John Hancock Investment Management. “Momentum is a powerful force and we don’t want to fight it.”

The company is keeping its investment in US stocks in line with the benchmark that accompanies and favoring the economically sensitive industrial sector. At the same time, it avoids increasing its shareholding and maintaining a neutral position in securities.

Analysts still see potential slowdowns on the horizon, including a recent spike in coronavirus cases and two runoff runs in Georgia this week, which will determine which party controls the Senate under President-elect Joe Biden. Democrats’ gaining control may raise concerns about higher taxes for corporations and capital-earning investors, traders say. Bets on higher tax spending can also hurt bonds and increase yields.

However, many observers still hope that ultra-low interest rates will continue to support bonds, while putting pressure on investors to seek higher-yielding assets. With many US technology stocks at record levels, many investors are buying stocks of economically sensitive companies, commodities and stocks of companies in emerging markets, all of which remain below their peaks.

His gains highlight the optimism that the economy will grow in the second half of 2021, even if the coming months offer obstacles to recovery.

“We are really encouraging our clients to look beyond” the predicted turmoil in the first half of 2021, said Meghan Shue, head of investment strategy at Wilmington Trust. The company has increased its investments in US stocks and emerging markets in recent months.

Companies including Apple Inc.

who benefited from the tendency to stay at home, ended the year with surprising market values, while everything from electric car maker Tesla Inc.

copper producer Freeport-McMoRan Inc.

also posted unusual returns

This highlights the growing extent of the recovery, but high projections both for the technology sector and for actions more sensitive to growth remain a concern for some money managers.

“Expectations for certain segments are overblown,” said Lee Baker, president of Apex Financial Services in Atlanta. He is recommending customers to give preference to cheaper banks and stocks linked to travel in the new year.

Fund managers consulted by Bank of America last month said they had less money than the benchmarks they track for the first time since May 2013, another indication that investors are transferring money to more risky parts of the market. Many of the respondents have increased their investments in areas such as emerging markets recently.

“These markets have much more potential for recovery,” said Michael Kelly, global head of multiaset at PineBridge Investments. He has favored emerging markets, as well as shares in France and Spain in recent months, believing that an increase in global growth, aided by government stimuli, will help them to outperform.

Investors were particularly encouraged by the recent economic data showing the Chinese economy at high speed after the country contained the coronavirus, a boon for other emerging markets and producers of raw materials. Analysts now expect the US and Europe to catch up.

Despite the worsening of the pandemic in these regions, the economic data remained largely stable, with the launch of vaccines giving consumers and businesses more confidence.

This is also helping to make a big recovery in stocks linked to sectors affected by the pandemic, including travel and leisure, but some investors are concerned that these companies will not meet high expectations as the recovery unfolds.

“You have to be careful with some of these reopening negotiations so that sentiment is not yet in place,” said Victoria Fernandez, chief market strategist at Crossmark Global Investments. It is favoring faster-growing companies linked to the technology infrastructure and waiting for a setback to increase their positions.

Write to Amrith Ramkumar at [email protected]