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Monthly Market Snapshot: February 2021

A monthly update on equity, fixed income, currency and commodity markets.

Views expressed are those of the authors and are subject to change. Other teams may hold different views and make different investment decisions. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional or institutional investors only.

Equities

Global equities (+2.5%) advanced over the month, ending February with a 2.3% gain year to date. Markets were fueled by a significant drop in COVID-19 infections globally, the accelerating rollout of vaccines, and ongoing fiscal and monetary stimulus; however, the path to a sustainable recovery remained clouded by the high number of existing cases and the spread of new virus mutations. Greater optimism about the potential for a strong rebound in global economic growth heightened inflation fears, driving government bond yields higher and prompting a sell-off in equities toward the end of the month, particularly the shares of technology companies whose valuations have been propped up by extraordinarily low interest rates. The US government is poised to unveil another substantial fiscal stimulus package, while the European Parliament approved the Recovery and Resilience Facility, which will provide €672.5 billion in grants and loans to help European Union (EU) countries to alleviate the social and economic effects of the pandemic. Oil prices eclipsed US$60 a barrel for the first time in over a year amid brighter prospects for a near-term recovery in the global economy, surging demand, and production restraints by major producers.

US

US equities (+2.8%) rose, as market sentiment remained largely positive amid improving coronavirus trends, increasing vaccine supplies, substantial fiscal and monetary policy tailwinds, and upbeat forecasts for economic growth and earnings. Inflationary fears sparked an uptick in volatility and contributed to a pro-cyclical rotation, although US Federal Reserve (Fed) Chair Jerome Powell indicated that he does not believe inflation will increase substantially or at a sustained rate. Vaccinations and vaccine supplies continued to accelerate, while the number of COVID-19 cases plummeted by approximately 75% from their January peak. Despite unanimous opposition from Republicans, the US House of Representatives passed President Joe Biden’s US$1.9 trillion stimulus package, which now faces a number of obstacles in the Senate that could imperil crucial elements of the plan. Corporate earnings remained a bright spot in the US economy, with companies providing upward revisions to their forward-earnings estimates, along with optimistic commentary and sentiment. At the end of February, 96% of companies in the S&P 500 Index had reported fourth-quarter earnings, with 79% of companies…

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