New York (Reuters)-The first quarter of 2021 made investors vigilant because it increased yields, accelerated the rotation of cyclical stocks, and the surge in GameStop’s stock price, which brought WallStreetBets retail investors to the attention of the public .
Here are some of the trends that investors are positioning in the second quarter and how they affect the larger market.
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The yield on the benchmark 1
Many investors believe the move will continue-Goldman Sachs expects a yield of 1.9% by the end of 2021, while TD Securities will increase its yield to 2%.
“We believe this is happening for the right reasons,” said Gargi Pal Chaudhuri, head of investment strategy for iShares in the Americas at BlackRock.
Chaudhuri believes that further gains in yields are unlikely to derail the S&P 500’s record high on Wednesday because yields have risen from a “very low level.”
Others are not sure. According to a recent survey of fund managers by Bank of America’s Global Research Department, 43% of investors said that 2% of investors might sell stocks in the next 10 years.
(Illustration: A buck short-)
The rise in yields has helped the U.S. dollar rise to its highest level in nearly 17 months. Some investors have positioned the dollar’s strength in the future: the futures market’s net bet on a weak U.S. dollar is $10.3 billion, about three times its value in mid-January. One in one, the latest data from the CFTC shows.
A stronger dollar may drag down the profits of US multinational companies and bring bad news to the recent rise in commodities, which have pushed up prices of everything from oil to copper and iron ore.
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Anticipation of a US economic recovery has fueled the so-called reopening of trade in recent months, driving stocks in banks, energy companies, and other sectors that have been lagging behind growth and technology stocks for years.
The Russell 1000 Value Index increased by 11% in the first quarter, while the growth rate was 1%, continuing the trend that began at the end of 2020.
UBS Global Wealth Management Chief Investment Officer Mark Haefele (Mark Haefele) said in a recent report: “If a new paradigm emerges, including sustained nominal growth and higher yields, then value trade will Lasts for several years.”
However, the troubles encountered in the U.S. reopening efforts may reinvigorate the appeal of technology and return investors to stocks that have caused the market to rise for years.
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This quarter also marked investors’ long-awaited stock market maneuvers. The Cboe Volatility Index (Cboe Volatility Index) was recently traded below 20, down from a recent record of 85.47 a year ago. The index is known as a fear indicator on Wall Street.
Ally Invest senior options analyst Brian Overby (Brian Overby) said that this decline reflects investors’ expectations of recent stock gains.
Overby said the index is still above its long-term median of 17.5, which may be the result of some investors using S&P index options to hedge their stock positions.
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Although the inflation rate has been below the Federal Reserve’s 2% target on average over the past ten years, trillions of dollars in government spending has revived discussions about its return to inflation.
A measure of the inflation rate is 2.16%, the highest level since December 2018, and it tracks the average expected interest rate within five years of five years from now.
At the same time, the latest survey by BofA Global Research shows that fund managers believe that rising inflation is the biggest “tail risk” in the market. Inflation may drag down the U.S. dollar exchange rate and erode the demand for long-term bonds.
Reporting by Saqib Iqbal Ahmed and Lewis Krauskopf; Editing by Stephen Coates