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1st Quarter 2021 Market Commentary: Tempests In Teapots

Apr. 05, 2021 2:11 PM ETiShares MSCI ACWI ETF (ACWI)


  • Led by the U.S., global equity markets continued their advance throughout most of March as the MSCI All-Country World Index returned 2.7% for the month.
  • March’s equity market performance was a tale of two halves where the 2nd half of the month saw a sharp reversal.
  • The intramonth reversal was most prominent with U.S. small versus large cap. Around mid-month, U.S. small caps (S&P 600) were up almost 10% before nosediving but ending up 3.3%.
  • After lagging throughout much of the 1st quarter, defensive sectors such as Utilities, Consumer Staples, and Real Estate were among the top-performing sectors alongside traditional cyclicals.
  • The markets expect the good times to roll with vaccination rollouts and strong economic growth while they are less concerned about inflationary pressures and potential market disruptions.

Tempests in Teapots

"Be collected. No more amazement. Tell your piteous heart there’s no harm done."

– Prospero to Miranda following a shipwreck, Shakespeare’s Tempest

Global equities continued their strong advance this quarter, led by U.S. stocks, despite a number of ‘tempests’ that had threatened to disrupt the pandemic-recovery narrative. It turns out that most of these tempests merely had teapot impacts on volatility and investor sentiment but not nearly enough to throw pro-cyclical risk assets off their upward trajectory. Just like Prospero’s assurances to Miranda, no harm was apparently done as the S&P 500 Index continues to reach new all-time highs and high yield corporate credit spreads compress to multi-decade lows. Yes, there was quite a bit of heartache throughout the quarter, especially for individual actors involved in the tempest dramas, but as with Shakespeare’s play, the first quarter had a happy ending with risk-based assets trading near all-time highs.

Here is a quick summary of some of this quarter’s market-moving tempests that threatened to destabilize the markets but that have been ‘contained’ so far:

  • The Reddit-driven Wall Streets Bet short squeeze targeting short positions held by large institutional hedge funds (see our January 2021 Market Commentary).
  • Rising volatility in interest rates following an anemic reception to the 5- and 7-year U.S. Treasury Note auction in late February (see our February 2021 Market Commentary). Subsequent Treasury auctions ran more smoothly, yet long-term interest rates reached post-pandemic highs as the fixed income markets try to digest massive fiscal stimulus spending and higher inflation expectations.
  • Emerging markets headline risk on the rise led by Turkey which saw the lira tumble following the removal of the country’s third central bank governor in two years. Many central banks are facing a squeeze of tighter interest rate policies in the face of rising inflation

This article was written by

Benjamin M. Lavine, Co-Chief Investment Officer at 3D/L Capital Management, is an investment professional with 20 years of experience in asset management and institutional consulting. Ben brings a versatile investment background and knowledge set having served as a portfolio manager on the developed markets equity team at Batterymarch Financial Management and as a vice president in the Funds Management Division at Wilshire Associates. Ben brings expertise in the following areas: Global Quantitative Equity Research and Management, Macro Investment Strategy, Institutional Product Management and Development, and Institutional Consulting and Public Markets Fund-of-Funds Ben received his MBA from UCLA’s Anderson School of Management, holds the CFA designation, and has experience working on data platforms including Bloomberg, Factset, MATLAB, Orion Technologies, and Thomson/Reuters.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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