Macro Minutes: Why Growth in 2021

Key Points

  • The magnitude of last year’s drawdown was bear-like, but was quick, recovering within months, similar to a standard correction.
  • When 10Y minus 3M US Treasury yield spreads are greater than 2%, value equities frequently outperform. When spreads are below 2%, growth equities tend to outperform. Currently, the Treasury spread is around 1.4%, which is too narrow for value outperformance historically.
  • Market breadth has narrowed instead of resetting, a late cycle condition.
Investing in financial markets involves a risk of loss and there is no guarantee that all or any invested capital will be repaid. Past performance neither guarantees nor reliably indicates future performance. The value of investments and the income from them will fluctuate with world financial markets and international currency exchange rates.