Market Movers – Dec. 2020

Optimism filtered through the markets in December. Many factors were at play driving risk assets higher, with the main factors being the resolution of the U.S. election, a promised new round of stimulus, and the ramping up of vaccine rollouts. Trend Followers and Systematic Non-Trend strategies were able to benefit from the risk-on trade, with the majority of returns being attributed to the weakening U.S. dollar and the broad-based rally in commodities.

The USD reached its lowest level in two years vs. most major currencies in December. The weakening dollar was a major market theme throughout the second half of 2020. Expansionary fiscal policy and dovish federal reserve sentiment, along with an incredible rebound in U.S. equities caused investors to reduce exposure to safe-haven assets which further weighed down the dollar vs. peers. Many managers were able to capitalize on this trend during the latter half of the year and continued to do so during December.

On the commodity front, the reflation trade started to enter the picture in the second half of the year. As the dollar weakens, global commodities become cheaper for non-domestic purchasers. The cheap dollar and robust Chinese demand saw industrial metals and grains edge higher in December. Grains faired particularly well as China looks to rebuild their hog herd and purchase feed from U.S. farmers. These dynamics helped both commodity-focused strategies, as well as diversified futures traders, generate significant gains during the month.


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