Chart of the week

Stocks’ path higher in 2021 has been rocky

Equities’ rise this year has been choppy as investors confront new challenges. Our chart looks at stocks’ path and why flexibility remains important.

March 26, 2021 | 2 minute read

S&P 500 vs. Treasury yields

Source: Federal Reserve Bank of St. Louis, as of March 25, 2021.

  • The economy remains in an “all systems go” mode this week as encouraging economic data suggests further growth ahead.1 Weekly unemployment claims in the U.S. fell to a pandemic low, while the Federal Reserve now forecasts GDP growth of 6.5% in 2021, far above any annual growth rate we’ve seen since the global financial crisis.2 Many private sector economists believe economic growth could come in higher still.
  • Market sentiment certainly reflects this economic enthusiasm, as 51% of investors now expect stock prices to rise over the next six months, a 5-month high.3 Bearish sentiment, meanwhile, has trended downward since late January.3
  • Against this backdrop, the S&P 500 is up a solid 3.9% YTD while the CBOE Volatility Index (VIX), which measures investor expectations of near-term volatility, recently hit a pandemic low of its own. Amid this economic and market optimism, however, the S&P’s rise has been noticeably choppier in 2021 than it was for much of the market recovery period in 2020 (from late March through December).
  • While markets began climbing last March based largely on optimism for better times ahead, investors this year have had to contend with some of the challenges that accompany higher economic growth. For example, the 10-year U.S. Treasury yield has risen sharply, as have inflation expectations. The S&P also has transitioned away from some of its longer-running leaders, favoring value over growth stocks, for example, and cyclical over defensive.
  • Stocks continue to have a supportive backdrop this year with the earnings outlook increasingly positive. Yet a potential path higher for investors could require significant flexibility along with an ability to quickly shift amid changing market conditions as investors adjust to the next phase of the market recovery.

The chart of the week and any accompanying data is for informational purposes only and shall not be considered an investment recommendation or promotion of FS Investments or any FS Investments fund. The chart of the week is subject to change at any time based on market or other conditions, and FS Investments and FS Investment Solutions, LLC disclaim any responsibility to update such market commentary. The chart of the week should not be relied on as investment advice, and because investment decisions for the FS Investments funds are based on numerous factors, may not be relied on as an indication of the investment intent of any FS Investments fund. None of FS Investments, its funds, FS Investment Solutions, LLC or their respective affiliates can be held responsible for any direct or incidental loss incurred as a result of any reliance on the chart of the week or other opinions expressed therein. Any discussion of past performance should not be used as an indicator of future results.

This information is educational in nature and does not constitute a financial promotion, investment advice or an inducement or incitement to participate in any product, offering or investment. FS Investments is not adopting, making a recommendation for or endorsing any investment strategy or particular security. All views, opinions and positions expressed herein are that of the author and do not necessarily reflect the views, opinions or positions of FS Investments. All opinions are subject to change without notice, and you should always obtain current information and perform due diligence before participating in any investment. FS Investments does not provide legal or tax advice and the information herein should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact any investment result. FS Investments cannot guarantee that the information herein is accurate, complete, or timely. FS Investments makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information.

Any projections, forecasts and estimates contained herein are based upon certain assumptions that the author considers reasonable. Projections are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the projections will not materialize or will vary significantly from actual results. The inclusion of projections herein should not be regarded as a representation or guarantee regarding the reliability, accuracy or completeness of the information contained herein, and neither FS Investments nor the author are under any obligation to update or keep current such information.

All investing is subject to risk, including the possible loss of the money you invest.

Search our site