Will stocks investment increase at the expense of safe bonds?


Despite ongoing negative news on the spread of the coronavirus pandemic, contracts on the Dow, S&P, NASDAQ and Russell 2000 were up on Tuesday as vaccinations began in the US and Canada. European stocks continued to build on Monday’s rebound thanks to reports of progress on another round of US stimulus.
While some investors may think this is the time to buy into the market as sentiment seems to be improving, news of a new strain of the virus in the UK was reported and it is unclear if existing vaccines are effective against it.
Meanwhile, BlackRock (NYSE:BLK) upgraded its outlook on stocks to “overweight,” meaning the global investment firm recommends that clients increase the weighting of stocks in their portfolios, at the expense of safe bonds.
Of note: after outperforming in Monday’s session when the Dow and S&P sold off—NASDAQ 100 futures are lagging again. This pattern has been consistent in almost every session recently, although the cyclical rotation was mixed on Friday.
More evidence that recent rallies are supported by value stocks while investors reverse rotations during declines is that contracts on the Russell 2000 are outperforming. One of the market shifts during the recent rallies has been between large and small caps.
In Europe, the Stoxx 600 Index built on Monday’s rebound, even as Germany heads into a new national lockdown on Wednesday, until at least Jan. 10. The harsh measures, which include closing shops, schools and childcare facilities, are in response to 30,000 new cases and 600 deaths on Friday and could push Europe’s largest economy into recession.
The FTSE 100 rebounded from a lower open and sterling pared losses after reports of positive movement on Brexit talks.
Asia was painted red, as coronavirus news continued to dampen sentiment, only days after regional benchmarks hit records. Even China’s growth, as measured by industrial output—which increased for the eighth month in a row garnered no positive reaction. The MSCI Emerging Markets index fell 0.6% to the lowest in over a week, just after a series of record highs in recent weeks.
Yields, including on the 10-year Treasury note, rebounded from a second day decline, as investors continued to move into stocks.
Stimulus progress weighed on the dollar.