Doug Famigletti, Portfolio Manager
Michael Jamison, Portfolio Manager
February 5, 2021
Whenever we enter a new year, we frequently get asked what trends we see developing that could have an impact on the market's performance. Although we are not in the business of making predictions, there are currently five themes that we are monitoring closely as it relates to identifying investment opportunities in our portfolios.
A continued steepening of the yield curve
We believe short-term rates will remain low, anchored by the Fed Funds near-zero rate, and the Fed’s Treasury purchases will continue to limit volatility in intermediate maturities. However, we believe 10-30 year interest rates will likely continue to increase, creating a steeper yield curve.
Market returns move away from Tech and Big 5
Parts of the technology industry have exited an innovation phase and are entering a regulation phase in 2021. The open internet, Section 230, China, Internet access, 5G, and Antitrust are all big themes that may impact policy for the tech industry in the coming years. Depending upon the outcome of these new policies, we think market returns may begin to shift away from parts of technology, Apple, Microsoft, Amazon, Google and Facebook and into other sectors.
Change in market leadership
A few months ago, the market talk was all about how the leadership was so narrow and mostly just a few of the big names. We have now entered into a phase where the polar opposite is true, and a long list of both large and small cap stocks are acting as market leaders. The sector and factor leadership in 4Q20 changed dramatically and, if it continues, may take many investors by surprise.
Inflation expectations rise
Although the financial markets are pricing in higher inflation for the coming years, expectations of short-term increases are tempered by high unemployment rates. Unemployment is expected to remain elevated throughout 2021, so any resurgence in demand for services could be offset by softness in rents and some consumer goods.
Stronger economy than most expect
As COVID vaccines roll out, businesses re-open, and trillions in federal stimulus continues to filter through global economies, it is possible that we see an upswing in the world’s economic growth rate that is better than forecasted for 2021.