Equity markets delivered extraordinary returns in 2020, but the first quarter of 2021 will certainly test investors, given the return of uneven and contradictory news flow. Expectations of further monetary and fiscal stimulus, along with positive news on vaccines, have helped support equity markets. However, a new variant of the virus is putting increased pressure on health care systems, and we are seeing more and more countries locking down again. We believe this will have economic repercussions for many and, at a minimum, will defer some of the fundamental rebound investors have been anticipating. We also need to factor in political change. What does the “blue wave transition” in the US mean for companies and policy decisions, especially around taxation and US-China relations?
As we look out to the rest of 2021, we remain optimistic when we analyze the return potential of global equity markets. However, volatility is likely to increase, in part, as higher dispersion within factors, styles, and sectors emerges. For investors to try to make money in this environment, they will have to be more selective and active, which may at times mean taking a more contrarian approach.