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2021 Asset-Classes Performance Review

A review of major asset-classes performances in 2021. Oil prices lead, followed by the European and US equities.

2021 started with the promise of COVID-19 vaccines helping to defeat the pandemic. The policymakers delivered unprecedented monetary and fiscal stimulus in response to the global economic recession, with a massive impact on various asset classes.

As we come close to the end of the second quarter, here is a review of major asset classes’ performance year-to-date, but also of their ranges. Some assets performed better, and some surprises do exist in the ranking below, courtesy of BlackRock.

Oil Leads the Way

The oil prices have had a terrific start to the year. In the first few months, the rally in the price of oil exceeded all expectations. It advanced by the most in more than three decades, and the pace continued into the second quarter, albeit at a slower rate.

The WTI crude oil price traded yesterday above $70 for the first time since October 2018. Higher oil prices put pressure on inflation expectations, forcing central banks to reconsider their monetary policy sooner than intended. Moving ahead, the possible Iranian nuclear deal is conditioned by an oil deal as well, and it can be a game-changer for the price of oil for the rest of the year.

European Equities Outperformed US Equities

All eyes are typically on the US equities as they serve as a benchmark for US economic performance. While they performed nicely in 2021, the European equities outperformed the US indices.

The upcoming European Central Bank, Bank of England and Federal Reserve decisions are crucial for equity investing for the rest of the trading year. The potential removal of monetary stimulus may trigger a correction, as fears of a taper tantrum mount by the day.

US Dollar Index

The Dollar Index (DXY) had a mixed performance in 2021. In the first quarter, it gained, led by a decline in the EUR/USD exchange rate. However, once April began, the EUR/USD reversed sharply from 1.17 and regained the 1.22 level. With it, it triggered a sharp reversal in the DXY, basically flat for the year.

Fixed-Income

Rumours of Fed tapering as well as other central banks willing to remove some of the stimulus delivered during the pandemic triggered higher yield and lower bond prices. If the Fed begins tapering its asset purchases, the rise in real rates will further put pressure on yields.

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