In the first quarter of the year, the stimulus-driven economy brought higher yields and small-caps outperforming large-caps. Now, as we head into 2021’s final quarter, it appears as if the markets have reversed back into its quarantine position. The TD Ameritrade Network recently turned to Axonic Capital Director of Research and Head of Market Strategy Peter Cecchini To learn more about what has happened in the markets over the past three months.
“Coming into the year, the view was stimulus is going to drive the reopening trade. That is slowly starting to change,” says Cecchini. “In a piece that we wrote in May, I suggested that we would start to see a second-half economic slowdown and higher than expected inflation, and I think we have gotten that.”
According to Cecchini, whether or not the current inflation is transitory should not be of concern for investors. Rather, the supply disruption we have been witnessing over the past few months are having their impacts on the economy.
“I do believe that most of the fiscal stimulus has now been released. We can see that in a number of ways,” Cecchini tells the network. “That fiscal stimulus that I was relying upon for the bullish small-cap call has now reversed.”
During the segment, Cecchini also provides insight on why the window to buy equities is likely coming to a close and and how market is pricing in Federal Reserve tapering.