Bluebay-CIO: How much longer the rally can continue … | Markets | December 18, 2020


Mark Dowding from BlueBay Asset Management asks how long the bull market could continue and to what extent the main market drivers will persist. The bulls among market participants will be happy to hear Dowding’s assessment.

Mark Dowding, BlueBay Asset Management: “The two most important market drivers that have been prevalent since the end of October should remain intact for the time being.”

© BlueBay AM

Despite new massive lockdowns and increasing infection rates, the mood on the markets is good. The continued easing of monetary policy continues to support risk assets. Sentiment indicators point to this, according to Mark Dowding, Chief Investment Officer at BlueBay Asset Management, but that greed is currently outweighing fear. The question therefore arises as to how long the broad market rally can continue: It is noticeable that the two most important market drivers that have been prevalent since the end of October are likely to remain intact for the time being.

Two important factors
Medium-term optimism is supported, on the one hand, by the hope that the mass vaccinations in the second half of 2021 will enable a return to normality. On the other hand, the political decision-makers have indicated that they deliberately want to slowly dismantle the accommodative measures of monetary and fiscal policy in order to give economic development a full boost. This signals that a period of robust growth and very low interest rates could be imminent – which would further support the allocation to risk assets.

Short-term fears that the Covid-19 situation could worsen and economic growth could dip into a ‘double dip’ scenario seem dowding disproved by promises to ease interest rates further as needed.

It looks like the major central banks will “put” the market in the event of bad news. Since the path to easing monetary policy is primarily through further asset purchases, every time this happens, the demand for financial assets increases.

“In a world in which both good and bad news are treated as good news in the financial markets and thus lead to price increases, investors act rationally,” Dowding concludes. (aa)

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