Welcome to 2021

January 4, 2021

Welcome to 2021 Photo

2020 was a year of adversity, surprises, challenges and change. It saw pressure not seen in many years on institutions and political systems. In the midst of all this, the economy saw accelerating trends that have been putting significant pressure on certain sectors — a scenario that will continue into 2021. Overall, markets posted solid gains last year as monetary and fiscal stimulus was able to push valuations higher and overcome fundamental weakness.

The questions for market direction as we enter the new year are no more simple than the challenges we faced last year. The pandemic will continue to disrupt and significantly impact our lives at least through mid-year, if not beyond. Valuations for financial assets remain elevated, as they are being pushed higher by a zero-interest-rate policy that forces any growth to be valued with a significant premium. More stimulus will likely be pushed for after the change in presidential administration, only adding fuel to asset price expansion.

For the first part of the year, my expectation is looking very much like it did for the latter part of last year, with financial assets moving higher in price and yields remaining low with the yield curve steepening. Later in the year, I expect a reversal of these trends when interest rates start to climb, and the discussions around tax increases pick up momentum. 

Disciplined asset allocation is critical in these types of markets. The market can continue to be highly valued for longer than expected, and a change in the environment can come swiftly for unexpected reasons.

Tags: Stimulus | Valuations | Interest Rates | Yields | Yield curve

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This blog post is for informational use only. The views expressed are those of the author, Dave O’Malley, and do not necessarily reflect the views of Penn Mutual Asset Management. This material is not intended to be relied upon as a forecast, research or investment advice, and it is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy.

Any statements about financial and company performance of The Penn Mutual Life Insurance Company or its insurance subsidiaries (each, “Client”) made by the author is provided with a written consent from the Client.  Penn Mutual Asset Management is a wholly owned subsidiary of The Penn Mutual Life Insurance Company.

Opinions and statements of financial market trends that are based on current market conditions constitute judgment of the author and are subject to change without notice.  The information and opinions contained in this material are derived from sources deemed to be reliable but should not be assumed to be accurate or complete.  Statements that reflect projections or expectations of future financial or economic performance of the markets may be considered forward-looking statements.  Actual results may differ significantly.  Any forecasts contained in this material are based on various estimates and assumptions, and there can be no assurance that such estimates or assumptions will prove accurate.

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High-Yield bonds are subject to greater fluctuations in value and risk of loss of income and principal. Investing in higher yielding, lower rated corporate bonds have a greater risk of price fluctuations and loss of principal and income than U.S. Treasury bonds and bills. Government securities offer a higher degree of safety and are guaranteed as to the timely payment of principal and interest if held to maturity.

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