Is All Of 2021 Already Priced In?

The calendar should be arbitrary and have no significance to markets, but it does affect them because of the way money works. For example, money usually comes into markets at the beginning of the month. At the end of the quarter, money managers try to “window dress” by buying the winners of the past three months. There is low volume at the end and the beginning of the year. The best winners of the year usually do well in December and poorly in January. Many investors hold big winners into the following year to delay tax payments.

This is only part of the story as to why 2021 has already been so different from 2020. The other reasons are the exciting boost in the number of vaccines given out and the anticipated stimulus packages. Specifically, with energy there has been a recent surge in cold weather in the middle of America which has led to power outages especially in Texas. This weather is a reminder of just how different 2021 is from 2020. Oil went negative about 10.5 months and now it’s in the low $60s. Sentiment has turned towards commodities; it seems like every new event is a positive for the industry. What a turn of events! The chart below shows what commodity investors didn’t believe was possible last spring. Almost all major commodities are up year to date except for precious metals, cocoa, and coffee. This is the magic of a macro cycle shift. It’s powerful, although, it still hasn’t sent down the high flying tech stocks.

Investors who ignore macro will get swamped if they weren’t positioned for this. It’s funny how the same people who say they don’t follow macro also are betting everything on rates staying low. If your entire portfolio is a long duration play, shouldn’t you at least have an understanding of where rates are headed? Or if you don’t know where rates are headed, you could own banks or energy to diversify your duration risk.

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