Monthly Market Insights - Data and opinions as of February 28, 2021

Stocks up, bonds crushed as reopening trade continues

Markets have been jittery about rising inflation ever since last November’s vaccine announcements. Sure enough, long-term government bond yields have creeped up since then, which has mostly benefitted cyclical stocks as they offer some degree of hedge during periods of moderate inflation. Then in just February alone, government bond yields climbed nearly three times as much as November and January. This time, the rise in long-term yields was largely driven by rising real interest rates, and less so inflation expectations, which can start to pose a headwind for risk assets as costs of borrowing increase. Real rates typically rise as economic growth prospects improve. While it’s difficult to pinpoint the exact cause, a few things are apparent: vaccine logistics appear to be improving, central banks remain widely accommodative, and more stimulus cheques are coming.

The NEI perspective

The bond market rout continued as the Treasury yield curve steepened, driven largely by rising real yields. This is a sign of encouraging economic conditions and a warning that markets may be pricing in a sooner-than-expected Fed rate hike.

The impact of higher yields carried over to the equity market as well, which reversed its gains in the first half of February. Under the surface, value stocks continued their outperformance and beat growth stocks by nearly 7%.

We believe the Fed will remain accommodative and that it still has tools at its disposal to intervene if necessary. Also, more stimulus cheques are coming to Americans.

Asset class returns for 2020

As of March 2021

Thoughts on the recent retail investor frenzy

The meteoric surge in Bitcoin prices has garnered a lot of attention. But there are important factors to consider before putting a dollar of your money in. We’ll assume the reader already knows what a cryptocurrency is and how blockchain technology works. If not, there are plenty of great online resources as it is too complex a subject to explain in the limited space below. But perhaps that’s the first warning sign right there. As Warren Buffett famously said,

How does Bitcoin compare to traditional asset classes?

Bubble size = market capitalization (size), expressed in US$ trillions


Bitcoin has seen a stellar annual return of 65% over the last three years. It has low correlation to gold and almost no correlation to stocks or bonds, so there can be diversification benefits. Moreover, Bitcoin can be an inflation hedge, as only 21 million units are ever coded into existence. However, as the chart above shows, Bitcoin is six times more volatile than stocks! To withstand such extreme short-term fluctuations, one would require either sufficient expendable capital or a long time horizon. There are also important environmental considerations, as mining Bitcoin requires immense computational power and energy. An estimated 60% of all Bitcoin mining occurs in China, where 58% of the nation’s electricity is still generated from coal. While there is proven commercial application for the use of blockchain technology, from an investor’s perspective, we will be staying on the sidelines for now.

Aviso Wealth Inc. (“Aviso Wealth”) is the parent company of Credential Qtrade Securities Inc. Aviso Wealth is a wholly-owned subsidiary of Aviso Wealth Limited Partnership, which in turn is owned 50% by Desjardins Financial Holdings Inc. and 50% by a limited partnership owned by the five Provincial Credit Union Centrals and the CUMIS Group Limited.

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Northwest & Ethical Investments L.P (“NEI” or “NEI Investments”) is a subsidiary of Aviso Wealth; and NEI Funds are related issuers of Credential Qtrade Securities Inc.

This material is for informational purposes only. While this material has been compiled from sources believed to be reliable, Qtrade Investor does not guarantee the accuracy, completeness, timeliness or reliability of this information. Information, figures and charts are summarized for illustrative purposes only and are subject to change without notice. All investments are subject to risk, including the possible loss of principal.