Outlook: December 2020 and Year Ahead
These are the key points discussed in our monthly investment committee:
- Our consensus view for the year ahead is for a less volatile 2021 in comparison with the extremely volatile 2020, spiked from the pandemic.
- Our view is that we are in a Post Recession Point at the moment, with unemployment at high rates but falling.
- The risk is more of a short-term nature going forward, due to possible Covid-19 spikes that may arise in the first half of the year. However, we remain optimistic for the year ahead and see less volatility towards the second half. We believe that the day when we actually see the immunity from the vaccines, zero new cases or zero deaths from Covid-19 in big Western countries will provide a new catalyst for a market rally (strengthening the rally from the vaccine news we are experiencing now).
- There is definitely room for corrections in the markets, as some valuations are extreme and earnings may not provide support for these, but we do not see any catalyst for significant downturns as the ones experienced in 2020.
- Our recommendation is for investors to take advantage of such bumps on the road and buy the (small) dips. We believe the day that the FED will be unable to support the market in such dips is not close, as inflation is not that close either.
- We saw Value investing having one of the best months in history in November, outperforming the S&P 500 and technology stocks. As suggested on our last consensus this rotation towards cheap, cyclical sectors that were laggards this year could be the trend going forward, as the economy recovers.
- The 60-40 model portfolio regime is changing on a global scale, as bonds do not provide sufficient yield for investors and the upside of further rate cuts is limited. This creates upside for alternative investments such as hedge funds, or our own systematic trading model (Unicorn) and Navigator fund.
- USD has depreciated the last month and could further depreciate as the market rally continues. If US markets show signs of correction this would lead to a stronger USD. Selling USD at these levels is a bullish move for investors who believe the market rally is not slowing down.