CAN THE BULL MARKET IN EQUITIES CONTINUE?

11.02.2021 The simultaneous shut down of all advanced economies, by the Corona virus crisis, triggered a crash in global stock markets last Spring. However unprecedented government spending and central bank money printing prompted a spectacular recovery. Can the bull market continue in 2021?

Initially the rally was led by technology stocks as widespread lock-downs and working from home induced an upsurge in the digital economy. Later on in the year, as news of a number of effective Covid vaccines was released, more traditional ‘bricks and mortar’ stocks rallied (e.g. hospitality and aviation sectors). In 2020 the FTSE All Share rallied 35% from the March lows while the American S&P 500 gained 68% from its nadir.

As a result of such a spectacular rally cash levels in Global Fund Manager portfolios are now at a historically low 3.9%. In general, the lower portfolio cash balances are the less fuel there is to drive markets higher. So, sell-offs tend to occur when fund managers have spent all their cash.

If both the US stimulus package and the vaccine roll-out, around the world, are successful then this is likely to be supportive for ‘bricks and mortar’ shares. In contrast, such an outcome will probably be damaging for the high-flying technology sector. Consequently, we see a good chance of a correction in the Spring or the Summer led by technology shares. Markets tend to be at their most exposed from the Spring through to the Autumn.

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This post was written by Robin