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The Great Rotation?

The Great Rotation?

It’s been an interesting few weeks on the markets with the high-flyers of 2020 taking a few steps back and the browbeaten underperformers of Covid driving the market ever higher. The following is a quick snapshot of some of the market’s winners and losers so far this year, which may surprise you!

2021 03.90 Winners & Losers

Amazon, Clorox and Costco all posting negative returns year-to-date? What’s going on, you might ask?

All three of those stocks were darlings in 2020, posting gains in excess of 30%! In our opinion, this recent pullback is part of a return to normalcy wherein actual company earnings and profits start to matter more than perception and emotion. As we have discussed many times before, stocks move up or down based on three things… Fear, Greed, and Profits! In this case, Fear and Greed pushed these stocks well above what we consider to be ‘fair value’ and so this recent ebb can be construed as the snap back to reality.

The impact of the pullback can be observed across all the markets and is considered a ‘rotation’ from speculative growth stocks (ex: Tesla) to value stocks (ex: Intel). With some investors eyeing the end of the coronavirus and the opening of the economy, the expectation is for ‘normal’ companies to finally catch up with their Covid-advantaged peers once again.

At the same time, the substantial government stimulus programs – $1,9 Trillion (with a T) dollars in the US alone –are stoking fears of future inflation. Interest rates are rising as a result, which not only squeezes the runway for lean tech startups but also puts significant downward pressure on bonds.

As of March 8th, the Canadian Bond Universe (FTSE/TMX) was -4.5% year-to-date, a far cry from the +8.7% it posted in 2020. To many, the idea that bonds might stand to lose more than 4% in three months is surprising. Our frequent readers will recall our October 2020 newsletter entitled Bothersome Bonds ( in which we explained why we felt this loss was likely. Investors in our private pool can take solace in the fact that we completed a significant shift out of bonds in Q3 and Q4 of 2020, moving from 26% bonds during ‘March Madness’ of 2020, down to ~10% at the time of this writing.

Despite the recent bump in the road, we feel that the prevailing optimism supplied by the potential end of the coronavirus is likely to keep the markets afloat near term. More to come on this subject in our upcoming quarterly private pool update!



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