Today, I have a few investment thoughts to present to you for consideration.
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We all woke up this morning to find out there was no winner in the US election. With millions of votes in battleground states still being counted, and close contests in five key states, the presidential outcome may not be decided for days, or longer. Mucking all of this up, of course, will be the re-counts and court cases if the vote comes in close. To me, this uncertainty spells volatility on the markets.
Big swings = opportunity
I read some research by BearTraps yesterday (I subscribe to their institutional package, and find it to be the best research I have used in my 30+ year career). They presented some data that predicted a much closer race than the “Biden sweep” that traditional polling institutions had been pumping over the past month or two. BearTraps has been talking about this disconnect for some time. So it didn’t surprise me to see a lack of dominance by the Dem’s last night. Its going to be close, no matter what, but my view is to use any dips to buy in the coming days or weeks. When the market gets clarity, it will rally – no matter who wins.
Morgan Stanley research coincides with ValueTrend’s contrarian outlook
I’ve harped on the hype surrounding tech and “Stay at home” stocks since the late summer – and I’ve made it clear that opportunity presents itself in what the market is NOT paying attention to. That is, the “Go outside” stocks and the value names are where the opportunity lies.
Morgan Stanley: “In that post-vaccine world, people will be able to spend the $1.8T in excess savings deposits they’ve built since February, equivalent to 9% of annual GDP. People have never had excess savings on anything like this scale in the modern era. Accordingly, we’re expecting an unprecedented wave of spending on discretionary services like leisure, travel, and entertainment, just as soon as people feel safe and the sector fully re-opens.”
My take: As I have been pounding the table on – continue to focus on value and “go outside” stocks for your portfolio. “Stay at home” stocks are overvalued, and overbought. Market indices like the SPX and Nasdaq are overweight in the “Stay at home” names. This is about to become a rotational, stock pickers market , rather than an index players market, or growth focused market, as it has been.
Morgan Stanley: “We think 10 year yields are about to rise significantly and a 100 bps move cannot be ruled out. .. the driver of the next leg in this bull market will likely be earnings, not valuations ..”
My take: don’t count on Monetary policy to continue pumping the market’s overvalued darlings forever. For now, rates remain low. But the fiscal stimulus packages being injected into the system will eventually influence inflation. Rates will rise eventually. We think an investor should slowly add the commodity plays, including producers, producing countries (and their currencies), and the commodities themselves. Inflation hedges can include precious metals, base metals, agriculture, and yes, even energy. This is a longer termed strategy that wont necessarily profit in the short term. As such, we are legging in a bit at a time – not all at once.
Further, we think that buying stocks that have longer termed potential for earnings growth with reasonable valuation are the way to go. If the FAANGs tread water (as they have been for 2 months) for a while longer and allow for fair value to re-appear in their names, they will become attractive candidates. For now, per my comments above, we like the overlooked value names.