A Comment -- General Comments From an Expert (A Commentary)
COMMENT
How to step into the stock market upon retiring? Just add money a little bit over time, and invest that way. Mutual funds are still a fabulous way to diversify. We're all going to live longer than we expect. Very important to have your savings grow into retirement. Monthly contributions are a way to do that. It will give you the safety you're looking for through dollar cost averaging.
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What are you expecting in the first half of 2021 with the Biden presidency? Valuations are not cheap across the board, so it's harder to deploy new capital than to hold existing winners. Largely, the setup is optimistic for 2021. It's one of the risks that everyone is so positive. Covid is an ongoing problem. Positive vaccine news makes investors see a return to normal. Biden presidency should continue to support equity markets, though there is a possibility of higher taxes. Balance of power should hinder sweeping changes, and this will protect corporate profits. Fiscal and monetary policy are positive drivers to boost growth coming out of this pandemic and keep interest rates near zero.
COMMENT
Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. The recent strength in the markets could be a combination of low interest rates and therefore lack of alternatives to stocks and the feeling that the worst has already occurred. The world closed in March but many companies prospered. Savings rates have also gone up so there is a lot of cash in the economy right now. Unlock Premium - Try 5i Free
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What worries him is that we all have the same consensus for 2021: more vaccinations lead to more economic recovery to trigger pent-up consumer demand as all central banks keep rates low and governments uphold stimulus, and so markets continue to rise. But he sees a risk: if the economy picks up steam, how long can interest rates stay low and will they rise? He's sticking with industrials, energy, banks--recovering cyclicals. He's cautious about tech. Can the Fed hold interest rates this low? He wonders. Yes, a dip is possible in the coming quarter, but nobody can time these things. Expectations are so high and markets are currently overbought. Don't time a dip, but stick with the names you know. Conversely, we won't see another 2020 recession for some time. It's still a good backdrop for investing, despite a possible 10-15% pullback, but that pullback means we return to levels a few months ago.
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[Today's Market Call did not air and instead BNN aired a Bloomberg show, "Balance of Power", covering US politics.]
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COMMENT
Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. A lot of companies with high performance seem to be selling off today. There are lower trading volumes in the markets, as well as adjustments for year-end positioning so volatility is not unexpected. Unlock Premium - Try 5i Free
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Economists say we'll see how bad things really are in January - March 2021. He agrees. People don't know what to expect coming out of the holiday season. First quarter will be difficult, second one will be slightly better. Third and fourth quarters should be substantially better with pent-up demand for travel, restaurants, and retail. Implication for capital markets is anyone's guess. Interest rates will certainly remain low, even if we see inflation. Long end of the bond market may creep up, but the short end will stay where it is. Equity markets will see some volatility. Fiscal and monetary policy have changed dramatically, and the effects may not be seen for years. Working from home has changed consumer behaviour in ways that we don't know about. Commercial real estate may be difficult, but things like cloud computing and infrastructure have done well and will continue to do so. Companies that did well in 2020 will continue to do well in 2021. A bad business will continue to be bad in 2021.
COMMENT
What's in your crystal ball for 2021? Tech is the best performing sector in the S&P 500, up just shy of 40%. He's a bit concerned that the market is over its skis. In 2021, he likes large cap, growth at a reasonable price (GARP) names. MSFT, Ericsson, Nvidia, Alibaba, all leaders in the accelerated move to the cloud. Likes semiconductors like Micron, and e-commerce leaders like PayPal and Shopify. Has also identified the themes and trends of robotics and gaming, electrification, 5G deployment, digital twins, and AI.
COMMENT
Volatility for 2021, and how are you positioned? Near term, volatility and vulnerability to the downside for the market. Valuations are being compared to 1999-2000. Sinking yields, IPOs, frenzy of call options, merger mania, and digital tulips like Bitcoin. He's 93% invested across a couple of dozen tech vendors and end users. He also has a short equity indices hedge, which is quite high at 70%. Protect on the downside, and smooth out the volatility. Have a safety net.
COMMENT
Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. It is possible to see a correction in January, especially following big gains this year. It tends to be a short term event however. 5i would not make major portfolio moves on the possibility. Unlock Premium - Try 5i Free
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