Corporate Buybacks, Rising Rates, And Commodities

“Watch these plays and distinguish between them,” Adams said. “Rates are driving Financials. Reflation is certainly driving Energy and Materials. The question is, will reflation turn into inflation, because that's probably what's going to be required for the energy stocks to perform better. Longer term, Financials have more legs, because the yield curve is becoming more upward sloping, and we think the profitability of Financials will improve, and will prove to be the driver of performance of that space over the course of 2021.”

How to Invest for 2021

The recovery is just beginning, ultimately, and investors need to keep this in mind. We are clearly still in the early phase of the economic cycle, Adams noted, and it is necessary to have some tolerance for risk if you want to see something like high single-digit returns in your portfolio.

Of course, the caveat is that investors have to determine their own appetite for risk, their overall investment goals, and where they are best positioned given their assessment of their portfolio, Adams noted.

With that in mind, investors who are prioritizing returns with some risk tolerance likely need at least some exposure to the equity market. We are likely to see equities outperform, and investors with an appropriate appetite for risk will not want to miss these potential gains.

For example, consider the last cycle coming out of the 2009 recession, where 2010 proved to be a relatively volatile year, but stock prices continued to rise and set off a decade-long outperformance for the equity market.

This is typical behavior coming out of economic recessions, Adams noted. Normally, following a recession, we see years of very strong gains in equities.

“We’re so early in an economic recovery cycle right now that you do want to have exposure to risky assets, and assets that are somewhat levered to improving economic conditions and economic expansion,” Adams said. “You want to have some exposure to the stock market, despite the fact that a lot of people are definitely still somewhat hesitant to do so. I think there's still plenty of value left in equities.”

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