From Stocks to Bitcoin, Investors Bet the ‘Everything Rally’ Will Continue

The S&P 500 ended the year up 68% from its March lows, after losing more than one-third of its value in about a month. Government bond yields, which fall as prices rise, remain near all-time lows. Meanwhile, corporate bond yields also dropped after early-year turmoil. That means many bond investors ended the year with gains. And U.S. crude-oil prices are back near $50 a barrel after briefly dropping below $0 for the first time ever in April.

After the eye-popping rise during a global pandemic highlighted confidence that central banks and governments would prop up the world economy, many investors now expect the delivery of vaccines to buoy markets.

Gauges of sentiment from organizations including the American Association of Individual Investors show bearishness at multiyear lows. Meanwhile, tens of billions of dollars have recently plowed into exchange-traded and mutual funds that track stocks. Both of those trends have preceded past pullbacks, signaling excessive optimism to some cautious investors. Some are drawing parallels to the outsize gains late in 2017 and early 2018, before trade tensions and higher interest rates roiled markets.

“Investors can’t get enough risk—whatever it is,” said

Emily Roland,

co-chief investment strategist at John Hancock Investment Management. “Momentum is a powerful force, and we don’t want to fight it.”

The firm is maintaining its investment in U.S. stocks in line with the benchmark it tracks and favoring the economically sensitive industrial sector. At the same time, it is avoiding increasing its stockholdings and sticking with a neutral position in bonds.

Analysts still see potential speed bumps on the horizon, including a recent surge in coronavirus cases and a pair of Georgia runoff races this week that will determine which party controls the Senate under President-elect

Joe Biden.

Democrats winning control could prompt concerns about higher taxes for corporations and investors with capital gains, traders say. Wagers on greater fiscal spending also could hurt bonds and send yields higher.

Yet, many observers still expect ultralow interest rates to continue supporting bonds while pushing investors to reach for higher-yielding assets. With many U.S. technology stocks at records, many investors are buying shares of economically sensitive companies, commodities and shares of companies in emerging markets, all of which remain below their peaks.

Their gains highlight optimism that the economy will boom in the second half of 2021, even if the next few months offer hurdles to the recovery.

“We’re really encouraging our clients to look beyond” anticipated turbulence in the first half of 2021, said

Meghan Shue,

head of investment strategy at Wilmington Trust. The firm increased its investments in U.S. stocks and emerging markets in the past few months.

Companies including

Apple Inc.

that benefited from the stay-at-home trend ended the year with astonishing market values, while everything from electric-auto maker

Tesla Inc.

to copper producer

Freeport-McMoRan Inc.

also posted outsize returns.

That underscores the increasing breadth of the rally, but lofty projections for both the tech sector and more growth-sensitive stocks remain a concern for some money managers.

“The expectations about certain segments are overcooked,” said

Lee Baker,

president of Apex Financial Services in Atlanta. He is recommending clients favor banks and cheaper stocks tied to…