March 2021 Market Wrap

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In March, the market was dominated by two themes, the rise in bond yields and the outperformance of value stocks against growth stocks. Equities rebounded strongly at the end of the month, with S&P 500 crossing above 4,000 for the first time. Investors are buoyed by the prospect of a surge in economic growth amid widespread successful vaccinations, supportive market data and labor numbers, and fresh spending programs from the Biden administration.

On top of a US$1.9 trillion economic rescue package, a new US$2.25 trillion fiscal package was launched last week to focus on building internet and transportation infrastructure as well as injecting further funding into research and development work. Unlike the rescue package, this spending would be funded by increased taxes – corporate taxes rose to 28% from 21%, and taxes on corporate earnings overseas rose to 21% from around 13%.

Biden’s new stimuli plan has also helped eased investors jitters from the implosion of hedge fund Archegos Capital Management, when Archegos defaulted on its margin calls last month due to a steep drop in its portfolio holdings, forcing large scale liquidation of its US$30 billion stock positions. As banks exercise their rights to unwind swap trades with Archegos, it inflicted a ripple effect of near US$10 billion total losses for the world’s biggest banks and brokers.

Despite renewed hopes for a stimuli-driven global economic recovery, analysts remain cautious over growing signs of bubbles in the market, rising inflation expectations and the hike in bond yields. The US treasury yield curve is now much steeper compared to a year ago, with the 10-year US Treasury yield standing at 1.7%, contributing to the dollar rally –  USDJPY recorded a 12-month high in March.

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