Pandemic, what pandemic?

Important information: The value of investments and the income from them can go down as well as up, so you may not get back what you invest.

The past year has been remarkable in many ways. In terms of stock market performance, it has been exceptional. The 75% rise in the S&P500 in the 12 months from the market low on 23rd March 2020 was the best annual performance since 1936, according to Deutsche Bank. It beat the recoveries from all the legendary bear markets of the past ninety years or so. And as the chart of the MSCI World Index here shows, it has not just erased the losses from last spring but returned the global stock market to its already impressive upward trajectory. It is as if the pandemic never happened. Whether or not that is justified is a key question for investors. Will we look back on this period as we now view the 1987 stock market crash - just a blip in the 1982-2000 bull market? Or have we simply deferred the reckoning?

Source: Refinitiv, 31.3.21. Rebased to 100 at 31.3.09, total returns in USD

%
(as at 31 Mar)
2016-2017 2017-2018 2018-2019 2019-2020 2020-2021
MSCI World 15.4 14.2 4.6 -9.9 54.8
S&P 500 17.2 14.0 9.5 -7.0 56.4

Past performance is not a reliable indicator of future returns. When investing in overseas markets, changes in currency exchange rates may affect the value of your investment. 

Bond yields - another false dawn?

One of the big stories of the first quarter of 2021 has been a rise in bond yields from the rock bottom levels reached at the start of the pandemic. The most widely quoted benchmark - the US Treasury 10-year bond - has seen its yield increase from 0.3% a year ago to around 1.7%. This has contributed to one of the worst quarterly performances by government bonds in the past 40 years and prompted a debate about the future for fixed income investments and the role that they play in a balanced portfolio. It has also been the driving force behind a rotation in stock market leadership from growth to value. As ever, it is worth looking at the context, however. While significant, the latest uptick is hard to spot in the relentless downward drift for bond yields during our investing lifetimes. Plenty of similar rallies have come to nothing. Is this really such a watershed moment? Only time will tell.

Source: Refinitiv, 31.3.21

Past performance is not a reliable indicator of future returns. When investing in overseas markets, changes in currency exchange rates may affect the value of your investment. There is a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. When interest rates rise, bonds may fall in value. Rising interest rates may cause the value of your investment to fall.

Bubble watch

It is hard to argue that markets as a whole are experiencing a bubble, although some parallels have been drawn with the dot.com boom of the late 1990s. The investor euphoria that characterises periods of excess is just not in evidence today. However, there are clearly some pockets of speculative over-reach. The GameStop saga was one such highlight in the first quarter of 2021. Another has been parts of the IPO market, where some flavour-of-the-month shares have enjoyed spectacular market debuts. An area of the market which I flagged up three months ago as one to keep an eye on was the renewable energy sector, which had doubled in six months and looked overcooked. The chart here shows what has happened in the past three months. Momentum investing always looks easy until the music stops. The red flag at the start of the year was valuation - green energy is obviously the future, but the price you pay matters too.

Source: Refinitiv, 31.3.21, rebased to 100 at 31.3.20 in USD

%
(as at 31 Mar)
2016-2017 2017-2018 2018-2019 2019-2020 2020-2021
World Renewable Energy Index 2.8 1.4 12.7 20.9 186.4

Past performance is not a reliable indicator of future returns. When investing in overseas markets, changes in currency exchange rates may affect the value of your investment.

Acknowledgements:

The views in this report are derived from a variety of sources within and outside Fidelity International. They are based on the house view of the Fidelity investment team and other sources. However, the report is written for a UK personal investing audience and the ideas are explicitly linked to the Select 50 list of our preferred funds. We consider this to be the best way for our investors to implement the ideas discussed in the Outlook. I would like to thank, in particular: Salman Ahmed, Andrew McCaffery, Wen-Wen Lindroth, Jeremy Osborne, Gary Monaghan, Leigh Himsworth, Ayesha Akbar, Jeremy Podger, Neil Cable, Andrea Iannelli, Kasia Kiladis and Natalie Briggs.

Fidelity uses cookies to provide you with the best possible online experience. If you continue without changing your settings, we'll assume that you are happy to receive all cookies on our site. However, you can change the cookie settings and view our cookie policy at any time.