“As the end of the year approaches, the horizon of a certain number of investors is getting shorter”

Posted on Dec. 2020 at 18:07Updated 21 Dec. 2020 at 18:16

How to explain such a sudden reaction of the markets even though the recovery plan has been adopted in the United States and the vaccines are starting to be deployed?

As the end of the year approaches, technical phenomena become more important. First, in less liquid markets with fewer players, the movements are more abrupt. Then, the horizon of a number of investors becomes shorter. Their performances being evaluated on an annual or quarterly basis, they have every interest in taking their profits if the opportunity arises because the last weeks and months have been marked by good performances. The mutation of the virus gives them the pretext. We cannot exclude a real concern either: some fear that the vaccines already developed will be less effective against the new form of the virus. This is obviously a crucial point that will have to be monitored.

After a year like this, have markets become more sensitive to tail risks?

On the contrary ! They are less so. Cyclically, it is linked to the arrival of vaccines. But structurally, they actually reacted little in 2020 compared to what one might have expected given the depth of the recession. Even if the maximum decline in the equity market was more important than the loss of jobs (-20% in the American market against -14.5% on the basis of monthly data), it was also of an extremely short duration. . After hitting a low on March 23, the S&P 500 broke a new high record as early as August 18. It is quite different for the job market. As of November, there was a ten million job shortfall and it will likely take years to return to pre-pandemic employment levels. After the Great Recession, it took about fifty months to make up for the eight million jobs lost previously. Central banks, through the various safety nets put in place for the markets, have reduced their sensitivity to risk.

Do you expect stock market Europe to revenge on the United States in 2021?

This year, investors have found refuge in the only stocks with profitable prospects: growth stocks, whether in the technology or health sector. From now on, with a situation which is gradually returning to normal, attention will be focused on excessively slaughtered securities whose profits could rise. We believe that corporate earnings growth will come back to the heart of investors’ concerns. 2021 will be the year of the return to reality for the equity markets. In the previous two recessions, real earnings and the equity market had moved fairly synchronously, in terms of timing and speed of the recovery, while this year the market recently peaked as earnings rebounded. is still waiting. The gap will one day have to close.

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