There Is Change Afoot In The New Year

There is Change Afoot in the New Year image

The State of the Market

Good morning and welcome back to the land of blinking screens. It is my sincere hope that everyone enjoyed the long, holiday weekend - I, for one, needed some rest! But now it's time to get back to it.

As we venture forth into the "brave new world" that is 2021 (hat tip to Jeff Pietsch, CFA), it is common for investors of all shapes and sizes to assume that the markets will continue to act in a manner similar to what they had been as the prior calendar year came to a close. However, in looking around at the landscape, I see changes taking place - on many levels.

Interest Rates

For starters, the interest rate environment has clearly changed. Instead of the steady downtrend that saw the yield on the 10-year fall from 3.2% in November 2018 to the astonishing nadir of 0.7% on March 6, 2020, rates are now in a defined uptrend. And the move has accelerated so far this year in response to the "Blue Wave," which is expected to bring more stimulus (and in turn, more borrowing) and higher tax rates.

Although I don't believe stocks will be bothered by rates until/unless the yield on the 10-year becomes a realistic alternative to dividends paid on stocks, it is worth noting that the Aggregate Bond Index (using AGG as a proxy) sports a loss of -0.80% on the year so far (source: Morningstar). As such, one of last year's portfolio tailwinds appears to have turned into a headwind.

The Economy

Another potential tailwind-turned-headwind is the state of the economy. Yes, stocks are indeed a discounting mechanism of future expectations and thus, investors are looking ahead to better days. But it is worth noting that the services sector is struggling again in response to the new lockdowns being enforced in many parts of the country/world.


And yes, I also recognize the vaccines are here and will afford everyone the ability to return to some form of normalcy in the future. The question, of course, is when will enough people be vaccinated to achieve herd immunity and turn COVID-19 and its expanding variations into nothing more than another strain of the flu?

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The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning's opinions and viewpoints regarding the future of the markets should ...

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