What does 2021 have in store for the markets: a boom or a bubble?

Investors compare the start of 2021 with the state of recovery in the markets in 2010 and the desire to accept high risk in 1999. Which of the two parties will join the new year?

There are no identical repetitions of history, and each year contains its own distinct mix, which can infect expectations using business cycle analysis and statistical models sometimes extrapolating the future.

Echoes of 2010

The main similarity with 2010 comes from the movement of the market itself. A strong bullish turn in panicked sales in March followed by an unusual and broad rally that investors have treated for months as fragile, premature or misleading.

DataTrek Research co-founder Nicholas Colas notes that the two years to reach the lowest level recorded in March 2009 coincide with March of last year, and in both cases fiscal and monetary policy has fallen. strived to restore market confidence. From what was reported by “CNBC” and seen by “Al Arabiya.net”.

The massive central bank reactions and fiscal responses are similar over the two years, with the Fed’s actions generating enthusiasm, with policies (quantitative easing at the time, and the promise of a major adjustment up to that inflation targets are met).

The Federal Reserve is aiming for stable inflation rates above 2% for a while. Investor confidence in this promise could be tested if the economy and markets start to rebound better.

In contrast, the economic recession in 2020 was not as severe as the 2007-2009 period, in which stocks lost half of their value, threatened the financial system itself and wiped out years of serious imbalances in the credit and mortgage markets.

The market goes up

In recent months, investment professionals have been unable to resist comparisons with the market’s frenzied rebound in the late 1990s, which peaked with tech stocks outperforming indexes for more than 12 years.

The S&P 500 is trading its highest dividend since 2000 out of 22 times, but has yet to peak nearly 26 times at that time.

Lower bond yields may explain these higher doubling profitability, which Fed Chairman Jerome Powell quoted, saying, “Stocks aren’t worryingly overvalued now.

While low bond yields explain the higher valuations of stocks, they do not boost future asset returns, as the current level of profit multiples will not be the best starting point for long-term gains.