Bets on 2021 economic recovery largely priced in

THE ongoing rally spurred by hopes for economic recovery has been recently put on hold by both a worsening pandemic, as well as a rising US dollar and 10-year bond yields that are responsible for massive sell-offs in riskier assets such as bitcoin and relatively overstretched equities. Bitcoin itself plunged 20 per cent from all-time highs on Jan 11, representing a spectacular US$9,000 price decline in a single day's trading.

The S&P 500 Index (SPX) itself has rallied around 200 points since the November 2020 US presidential elections. These are some signs suggesting that investors look forward to a more politically stable climate with fewer risks for businesses, especially with the ongoing US-China trade war.

In late 2020, unemployment rates and rapidly increasingly daily death counts from the Covid-19 pandemic spurred the stock market to new highs. Investors would pile in on equities and riskier assets, with rising market expectations for US regulators to increase fiscal stimulus, keep interest rates low, and commit to maintaining the Fed's titanic asset purchasing policy for the foreseeable future.