Where To Invest Now: COVID And Correlation

Key Points

  • COVID-19 resurgences appear to be the primary driver of moves across many markets this year.

  • Until the COVID-19 case count gets back under control, the yen may strengthen, the U.K. yield curve may flatten, and defensive lockdown-era leaders in the stock market may continue to outperform.

  • Don’t know exactly what will happen next? Diversify. Since many different types of stocks are making new all-time highs, but they are not moving in sync with each other, it can be good news for diversified investors.

With the current news flow, it’s hard to tell exactly what’s driving the global markets’ moves. There is a lot going on! It’s one of the best earnings seasons in history. U.S. inflation is surprisingly strong. The Fed is openly discussing when to rein in stimulus. But the blanket explanation for just about everything happening in the market this year is COVID-19.


2020 will be known as the pandemic year, but COVID-19 is still around and driving 2021, too. New COVID-19 cases, driven by the rapidly spreading Delta variant, seem to be driving the stock market’s rotation this year in relative performance of sectors, styles and countries, as you can see in the chart below. Economically sensitive, or cyclical, stocks have outperformed when the global case count declined and the defensive, lockdown-era leaders outperformed when cases climbed.

Delta driver: sectors, style and country

Source: Charles Schwab, Bloomberg data as of 7/16/2021. Past performance is no guarantee of future results.