The near 6% performance differential between the Dow Industrial Average and Nasdaq indices in March 2021 provides all the evidence required to illustrate the sharp rotation from the growth segment of the market to cyclicals over the course of March 2021.
The promise of a strong growth rebound and potential return of inflation, thanks in a large part to the continued roll-out of Covid-19 vaccination programs, combined with arguably attractive valuations, meant that sectors such as travel, basic resources, financials and automotive dominated the top of the performance table. The winners of 2020 were always going to suffer in such a scenario and predictably underperformance was notable in those stocks who stood to benefit from the economic dynamics of the pandemic with technology shares proving most out of favour, hence the lacklustre Nasdaq returns.
Perversely there was in fact little good news to be had from Europe in terms of the pandemic and its duration. What has now come to be regarded, at best, as a ham fisted approach to the vaccination program has resulted in another wave of the disease taking hold with a host of countries forced to announce further restrictions, all with the capability to further lengthen the economic pain already inflicted by Covid-19. If rising bond yields were part of the equation behind this rise the ECB did their best to stem this trend with a commitment to holding rates as well as an ever larger and faster government debt purchase program. The rationale behind this stance was that inflation has yet to show any serious signs of increasing within the Eurozone, a somewhat contrarian position when compared to the moves seen in the equity market.