A Comment -- General Comments From an Expert (A Commentary)

Market. Optimism on vaccine progress has been driving the markets since last Monday. Historically pandemics last one to two years and this one seems to be following that same pattern. There has been a lot of assistance this time around compared to history so we will see if businesses can hang in there. Stimulus is expected to be a little lighter. We should be able to get through this. With zero interest rates you HAVE to go to stocks, people think, and this is something to be concerned about. If there is a reversal and interest rates rise, you can imagine what would happen gradually to valuations. Interest rates starting to inch up would make the market go sideways for 3 to 4 years. Increasing interest rates or a decreasing US$ would require interest rates to go up. Make sure you have a portfolio that includes stocks that could handle rising interest rates.

Wall Street welcomes a Biden presidency Wall Street was never on the Trump train. Sure, investors liked the tax cuts, but hated his China trade war (though Cramer himself believe Trump needed to confront China). Wall Street is full of free traders who will welcome Biden. He expects Biden to phase out the current tariffs against China. Expect M&A deals between US and Chinese companies to happen quicker and smoother. Apple, semis stocks and Honeywell will benefit from Biden. Also, CEOs were outraged with Trump's contempt for the environment. Anyway, we have an oil supply glut, so oil prices have been hammered. He predicts e-cars and green energy will do very well under Biden.

This week has been quite crazy. He has come at it from a quantitative perspective where he wants to buy stocks that are cheap, stable and rising. This week, we saw rotation into anything that was in a downtrend. More levered companies in financial and energy saw rotation. This was due to the vaccine news.

Coronavirus vaccine. Looking to Q1 and Q2 of next year, it is positive. However, the market is trying to pull-forward this timeline. This bull market has been very odd, since normal beneficiaries coming out of a recession, such as financials, materials and industrials have not recovered yet. It has been an asset price recovery and not an economic recovery. The market is very expensive. There are expensive growth stocks and reasonably priced cyclical stocks.

The broader index is dominated by big tech right now. Looking into next year, we could see the index stay relatively flat, but could see good returns from financials, materials and industrials. Parts of the market will probably be up but not necessarily the absolute market.

The market has no memory. It plummeted yesterday because of fears that the US has lost control of Covid, yet markets gained today. Any time stocks get hammered it triggers a vaccine reaction in that good news will bail us out. In truth, a vaccine won't reach the masses until the spring probably. We're dealing with cross-currents. Rising cases spells a rough winter, though earnings are up (i.e. Cisco, Disney), a vaccine looks likely to come, and there remains a (rocky) transition to Biden. He expects positive retail company results next week.

He's often asked how stock markets can rally so high as the number of Covid rises so high. He answers that business responds to the danger of Covid, like investing in PPP for employees or closing down operations. CEOs don't have the luxury of pretending that Covid exists, like Trump does. Trump is tweeting about the election instead of tackling the current pandemic. History will show that business stepped up in this crisis.

For now, markets and economies depend on cheap money and fiscal spending? Yes, US election and Covid vaccine were overhangs on the market, and now we have more clarity. But even with Pfizer's announcement, it's going to take a long time to manufacture and distribute. Virus will continue well into next year. We need, and have, global central banks being accommodative. In the face of a virus resurgence, a fiscal package is very important, especially to get small businesses, travel, and leisure through the next few months.

With the vaccine progress, do we now have a visible path to normality? You're right. Historically, vaccines take years. So the current fast track is unprecedented. Hopefully, by mid to late next year, the vaccine will be out in the general population. So the economy can start opening up and return to a sense of normalcy mid to late next year.

Is the market rally on the prospect of a Covid vaccine too optimistic? Doesn't think so. There are times, though few and far between, when you have to buy the gap higher as on Monday, yesterday, and today.

Will the valuations for big tech end in tears? Not sure of that, but we wanted to see tech take a breather and to see the rally broaden out to other sectors. Heavy lifting to year end won't be in the Shopifys. They'll be fine in the next couple of years, and you'll probably have an opportunity to pick away at them a bit lower. But when the value complex like banks and lifecos have a 10-15% move, and if you assume the economy will recover 2021-22, there's still a lot more for these value names to go.

Are you avoiding certain sectors? It's still a balance sheet issue. Vaccine won't be widely distributed for quite some time. Some sectors are in dire need of assistance right now, and even if they get it, balance sheets could still be worse off 6-9 months out. You could pick away a tiny bit at a Carnival Cruise Lines. But there's so much upside in names with great balance sheets, like banks, Enbridges, and Manulifes, that you really don't need to take on the extra risk to do well in this rally.

Not wild about real estate sector? High watermark for him to be attracted to REITs right now. Pandemic accelerated the retail trend, and started a new office trend. Competing for capital. Reminds him of the oil story of 2018. Likes REITs with moats, like the seniors ones.