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A Comment -- General Comments From an Expert (A Commentary)
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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COMMENT
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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COMMENT
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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COMMENT
2021 outlook The Year of the Vaccine and a return to a new normal. Economic growth will happen globally, including an uptick in bond yields. This will be the end of a 40-year bull run for investment-grade bonds. Investors will need to look elsewhere for returns. In stocks, PE ratios expanded in 2020, but investors will focus on valuation in 2021, much different than this year. It's unlikely big tech will perform as well in 2021; don't expect the same big returns. In Canada and worldwide, expect a steepening yield curve which will benefit the big banks and insurers. Telcos and pipelines will raise dividends.
COMMENT
A retired senior holds a Royal Bank 3.1% bond and Canadian stocks. Hang onto the bond? The 3.1% yield is much higher than today, so you probably have a capital gain on this. This could offer diversification to your portfolio. nothing wrong with holding onto this, offering you protection. But ask, how does it fit into your whole portfolio? What asset allocation works for you?
COMMENT
What bond ETF pays a high yield? Most of these trade in the US in US dollars. Expect more volatility in these high-yield bonds. He won't favour one ETF company over another, but favour one that favour currency exposure, meaning that if the USD declines, you won't suffer a negative decline. He can't predict currencies.
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Market. Over heating and froth does not necessarily point to a bear market. We have had 19 companies that more than doubled on their opening day after an IPO. We have not seen this since the tech bubble. The high valuations can point to a lot of downside when the bubble finally collapses. Governments are standing by with stimulus. We are at risk of a major sell off after the pandemic. But some factors are looking positive, such as an improving economy. The most optimistic trade is that the recession we had this year is a shock-to-the-system type of recession and typically have a lot of pent up demand released into the economy. At present, though we have further lockdowns announced, and we hear news of a new strains. We are not out of the woods yet.
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