Search for yield sustains buoyant markets
Risky assets picked up momentum with positive vaccine news in early November, after remaining range-bound for most of the period under review. Initially, an uncertain US election outcome and the second wave of Covid-19 kept valuations in check. Stock markets, particularly in the United States and China, alternated between brief rallies and sharp sell-offs. Subsequently, positive news on vaccine development boosted market sentiment and led investors to rotate towards sectors that had been severely hit by the pandemic outbreak. The overall market rise seemed to reflect the improved business conditions. However, concerns remained about the daylight between valuations, which are still above or near their already stretched pre-pandemic levels, and economic prospects, which are still uncertain.
A divergence in the assessments of corporate vulnerabilities may be emerging. Credit spreads in advanced economies saw some volatility but ultimately compressed further, approaching pre-pandemic lows. On the other hand, banks tightened lending standards throughout the review period. Investors' search for yield and the specifics of policy support appeared to underpin these contrasting developments.
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The views expressed here do not necessarily reflect the views of the BIS member central banks.