Financial Markets Remain in Rude Health Amid Real-World Turmoil

Posted on January 11th, 2021



Equity markets have continued their historic rebound in 2021 from their lows last March, driven by vaccine optimism, low rates, and continued stimulus funding.

Margin loan balances increased during the pandemic, eclipsing $722 billion through November and surpassing the previous high of $668 billion in May 2018, as reported by the Financial Industry Regulatory Authority.

Despite headwinds from the pandemic, global equity markets have remained resilient for the most part, ending the year with favorable returns. Growth and momentum led with the technology and consumer discretionary sectors elevating the most.

The dramatic COVID-linked selloff in March and the subsequent recovery by August were historic in proportion, with unprecedented recaptures across nearly all sectors of the equity markets in 2020.

Rates remained near historic lows throughout 2020 as ambitious efforts by the Federal Reserve and the Treasury ensured critical liquidity in the fixed income markets.

Key rates fell across the board in 2020, as injected liquidity and active monetary and fiscal policy initiatives contributed to a low rate environment. Mortgage rates fell to new lows in 2020 a dozen times according to Freddie Mac weekly data, triggering a flurry of refinance activity throughout the year.

The U.S. Treasury yield curve steepened towards the end of 2020, an indication to economists that inflation is expected to become more profound. The yield on the 2-year Treasury fell to 0.13% as the yield on the 10-year Treasury rose to 0.93 % in December, pushing short-term yields lower and sending longer term yields higher. Economists and market analysis also view a steepening yield curve as a validation that economic expansion is becoming a more promising possibility.

Sources: Treasury, Freddie Mac, Federal Reserve, FINRA, Bloomberg

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