Outlook - February 2021

SUMMARY OF THE MONTH

• Sectoral rotation of growth a value would explain this change in performance, as the U.S. market is made up of 45% of companies called Big Tech (technological giants).
• Sector rotation continues growth a value, several sectors have increased by a greater percentage than the S&P500. The Energy sector is up more than 20%.
• For several days, the news centered on how investors who sold stocks short were getting into trouble by an army of amateur traders on the Reddit network, many believe this led to a massive increase in the price of some stocks. Game Stop (GME) went from USD 10 in November to a peak price of USD 477.
• The pace of vaccinations continues to rise and cases (new and active) have declined worldwide. The United States reports the lowest number of daily cases since October. However, new variants of COVID-19 that would be more infectious continue to emerge and the ability of vaccines to defend against them is unknown.

Macro Corner | The U.S. Government

It seems almost boring to say that the market continues to rise, but we have continued to see record highs in the S&P and Nasdaq during 2021. Despite a dip in the last week of January, the markets recovered quickly and growth expectations are rising.

As we mentioned last month, a key aspect of the economic recovery will be defined by the ability of the U.S. government to deliver vaccines quickly and effectively. Logistical difficulties have hampered the pharmaceutical industry's ability to rapidly increase distribution and additionally, each state has defined different policies for individuals to be vaccinated. However, by February 14, the United States had delivered the first dose to more than 50M people, averaging 1.6M per day. Combined with a substantial drop in cases, it appears that COVID-19 may finally be mitigated by 2021.

At the current rate, the U.S. government estimates that the vast majority of the population (70% or more) will be vaccinated before the end of the summer, which would provide nationwide immunity. This scenario is contingent on the vaccine's ability to contain the most contagious variants.

Beyond the vaccine, the focus on the investor side seems to be on the key metric that many are watching and trying to predict, which is inflation. Inflation expectations as represented by the 5-year Breakeven Inflation has recently exploded to 2.37%. On the other side, inflation as such, as represented by the US Core Personal Consumption index, remains at just 1.45%.