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Is Optimistic Investor Sentiment Running the...

Is Optimistic Investor Sentiment Running the Market?

1st Quarter 2021 Stock Market Performance Review Mid Cap Core | KayneCast 150

April 14, 2021

Optimistic Investor Sentiment Is Running the Market

The announcement of successful vaccine developments in late 2020 was a bell-ringing moment, a light at the end of a long pandemic-darkened tunnel.

Stocks that would benefit from the economy fully re-opening received the most notice and most momentum at that time and since. Energy and consumer discretionary stocks are two sectors that outperformed in Q1, with many mid-cap businesses that were pummeled by the pandemic now becoming market leaders. However — as pointed out by Jon Christensen, CFA, Portfolio Manager of KAR’s Mid Cap Core portfolio — the question is always whether these companies can sustain and improve their earnings as the economy comes back.

When investor sentiment is optimistic about the economy, riskier assets tend to seem more attractive and get pricier. This is known as a “risk-on” climate, and lower quality, cyclical businesses are basking in that brand of sunshine right now.

2021 Stock Market Outlook — What We’re Looking For

The market is forward-looking, and when stocks rise, it means the markets are foreseeing a future recovery and business growth. However, Christensen points out that the markets can sometimes disconnect from the fundamentals — on either the downside or upside — in various stages of a company’s lifecycle. These disconnects may be exacerbated by the fact that the post-pandemic world may look very different from the pre-pandemic world in years to come. Opportunities, consumer habits, workplace trends, global markets may all see either minor or significant changes.

Christensen says his portfolio will be seeking:

  1. High-quality businesses with the potential to outgrow their markets over the long term; and,
  2. Disconnects in valuation that offer investment opportunities from time to time.
DISCLOSURE

This information is being provided by Kayne Anderson Rudnick Investment Management, LLC (“KAR”) for illustrative purposes only. Information contained in this material is not intended by KAR to be interpreted as investment advice, a recommendation or solicitation to purchase securities, or a recommendation of a particular course of action and has not been updated since the date of the material, and KAR does not undertake to update the information presented should it change. This information is based on KAR’s opinions at the time of the recording of this material and are subject to change based on market activity. There is no guarantee that any forecasts made will come to pass. KAR makes no warranty as to the accuracy or reliability of the information contained herein.

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