Macro Strategy - January 5th, 2021
WATCH Tony on Fast Money on CNBC talking about buying a correction:
https://www.cnbc.com/video/2021/01/04/if-stocks-kick-off-2021-with-a-correction-market-bull-tony-dwyer-says-buy-it.html
For 2020, The Nasdaq, Russell 2000 and S&P 500 indices were up 43%, 18% and 16%, respectively. While mega-cap stay-at-home stocks drove the markets in the first half of the year, the second half was dominated by the outperformance of companies and industries benefiting from a synchronized global recovery. The second half of 2020 was very different than the first half because investors began to discount the potential impact of historic excess liquidity on global expectations following the discovery of multiple Covid-19 vaccines. A few observations on the second half market ramp:
Smaller capitalization companies took the win in the second half of 2020 over larger cap S&P 500 companies (38% vs 21%)
Cyclicals led the way: the top three performing sectors were Industrials, Materials and Financials with returns of 29%, 28% and 27% for the last 6 months of the year
Emerging Markets Outperformed: The Morgan Stanley Capital International Index (MSCI) World index gained 30% as investors began to accept the possibility that the global economy was beginning to recover
Economic-Sensitive Commodities Jumped - Surging since the end of June, Copper and Oil were up by 30% and 24%.
Staying with favored areas while watching indicators
As we kickoff 2021, three of our four indicators remain stretched. Investors weigh on worsening COVID-19 trends, the Georgia Runoff Election, and implications of a state-sponsored hacking of US Government agencies and businesses:
Optimism is retracting: the National Association of Active Investment Managers (NAAIM) exposure index, has recently shown less equity market enthusiasm following a record string of weeks
An extreme intermediate-term overbought condition - Overbought is a term in technical analysis describing a condition when the price of a financial instrument increases so much that the buyers loses its faith and believe that a correction is due, selling pressure becomes dominant, results in decline in price.
Volatility sending mixed Messages - Despite volatility levels decreasing below pandemic highs, the index remains in elevated territory given the issues highlighted above
In summary, we continue to hold existing positions given our positive core fundamental thesis, but are patiently waiting for our key tactical indicators to suggest a more attractive entry point given any meaningful weakness.
Full Note Click HERE.
