12-1 Trend Update

Market Trend update from Jordan Kaufman, CFA, CFP:

Over the last month, and especially over the last few weeks, we have seen increasing shifts in sentiment towards the “reopening trade”.  The market has seemed to favor sectors of the market that benefit from a “return to normal” versus a long-term shift to the “stay at home trade” that has outperformed through the year.

In particular, we see technology stocks having mixed performance while “old economy” stocks, which offer significantly better valuations, have begun to outperform.  While we certainly understand that there is a tough winter of lock downs and restrictions ahead, we also know that the market is a discounting mechanism that is looking 6 months ahead.  This is a time when vaccines are likely to be in distribution and containment measures likely to be showing benefits.  We urge market participants to observe and adapt to these market shifts.

We also notice that “risk on” assets like U.S. small cap stocks and emerging market stocks are starting to outperform.  We could also lump crypto-currency into this bucket.  At the same time, “risk off” assets are underperforming.  One of these observations is interesting when taken independently, but when combined, they send a strong message.  Expectations have been consistent that a strong recover looms less than 12 months out, and taking a more aggressive approach in anticipation for that recovery may make sense.  See the following post from our friends at Goldman as additional insight.  https://www.goldmansachs.com/insights/pages/macro-outlook-2021.html

We also would point to the relative underperformance in gold as an issue worth addressing.  This seems somewhat contrary to intuition given the strength in crypto-currencies and the expectation of continued central bank irresponsible spending.  The simple explanation is that gold has too much of a defensive characteristic in the face of strong growth, confirmed through the strength in other commodities like oil (technically strong this time of year) and crypto-currencies (a possible gold alternative, but with much less volatility).  While the bull market in gold is too early to call over, it is worth noting that gold has been weak in an environment that should be supportive of its price. We are not bearish on gold, but we don't anticipate adding to positions.

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