E Market Briefing For Monday, Jan. 4

While there has to be lots of rotation to hold the S&P up in 2021; the values in stocks already historically at highs are often very limited (not all). Growth will have to occur in post-covid stocks; but many are also not exactly bargains. So the prospect of extension; or a sharp break (but not catastrophe) is out there, 'in-theory', while it really depends to a great degree on results not propaganda about the success (and embrace) of vaccines, or later therapeutic drugs, that will really take serious Covid concerns off the table as I've noted quite often.

 

Executive summary:

  • S&P and small-caps rebound a bit after annual tax/trade deadline passed;
  • Mandatory negative test proof for all air travelers in Canada now ordered;
  • AstraZeneca vaccine approved in the U.K.; and that's a conventional as well as easily transported and stored approach (speculative efficacy and that's why it's debated with different assessments by physicians);
  • This is what some call risk/benefit profile of the patient; hence you'll have markets (hate to use that term, but accurate) for several varying types of vaccines; and need for antibody therapeutics for many people or where it (the virus) rebounds or infects 'anyway', even if one has been vacinated;
  • The market for antibody therapeutics and also rapid tests is incredibly huge; ideally Sorrento's 'test' EUA will be approved within 10 days;
  • The mutant variants (whether new strains or not) will be more challenging to the vaccine makers than to the testing sector, for which it's no problem;
  • How we coordinate and navigate Covid 'is' still key to the market ahead;
  • Ironically the economy eventually may do better than the S&P, should we really (miraculously some think) emerge quickly from the pandemic; with so much having been discounted;
  • Despite the Fed remaining 'friendly'; they can eventually get stuck with a policy requiring inflation; and unable to dampen excesses without major disruptions to markets being risked;
  • They know this; and are more focused on getting through (bridging) this, than they are dealing with the ramifications; but it's there.. just not yet;
  • Be cautious about the push-up by Bitcoin; as promoters hawk ideas of a double or triple 'after' it already did just that; might again but like chasing a FANG type after they ran big-time;
  • Also the weak Dollar helps Oil prices stay high; and is avoided in-favor of Bitcoin (or even Gold) by contrary-opinion players; but these can shift;
  • Reversal could occur if 'any' major central bank comes forth with a digital coinage plan, it would diverge from a 'risk-on' view of Bitcoin as an asset;
  • By the way Bitcoin could retrench anyway if we get an equity shake 'soon' although I'm not seeing evidence that such is immediately forthcoming;
  • I do suspect many economic assumptions about (at least) early 2021 are indeed excessive for many sectors that would 'do better' post-Covid; and they will, just much of the early stages of that are priced-in (discounted);
  • Nevertheless the backdrop will be 'Roaring 20's' ultimately, even though it is already reflected by what the market has already done; almost cult-like;
  • Speaking of frenzied-like cultist behavior; they just put Tesla in the S&P; so there may be risk of a shakeout there impacting broader markets; but to overwork the term; after that Musk followers will 'religiously' rebound it;
  • By the way I don't dispute that Tesla has the best charging network over the USA; but I also don't dismiss some independent networks cutting one or more deals with OEM (original equipment mfg's.);
  • That's all part of the looming competitive landscape Tesla fans religiously deny will ever exist; but like Henry Ford and his 'model T'; that wasn't the only game in-town eventually (speaking of Ford they will be a player);
  • In automotive, assistive even more so than autonomous driving, will grow over the next few years; and rather than debate Luminar vs. Velodyne, I have tended to follow both; and suggest for now both will be interesting;
  • Banks (allowed to do buybacks helps) & Oils continue viewed favorably here; and very pleased we were bullish on Oil from the mid-30's forward;
  • The long-term damage to the purchasing-power of the Dollar is already a factor; as I've noted; while some politicians throw care-to-wind about this, as they focus on getting (crumbs?) to poorer folks who will pay the price in high food and other costs as inflation does rear it's post-stimulus head;
  • The Fed will never be able (in our lifetimes) to reverse this; so it tends to drive up prices; as nominally stocks may actually rise beyond this crisis; at the same time trying to play how this impacts S&P risk is still premature and I'm glad we were able to urge 'not' fighting the Fed this year;
  • The Fed is basically underpinning this market in 'surviving' sectors; that is the underpinning of our bullishness from March 23rd forward; but also it is stretched in 'some' sectors that benefited, so open to eventual shake-out;
  • Again many smaller caps already shook out and bigger caps generally not so much; hence a different bifurcated prospect 'may' loom in 2021;
  • People often act 'as if' a single vaccine shot will give them back their lives immediately; and I wish it were so; rather it's a couple weeks for immunity to even begin; and even when protected; one can still catch the virus;
  • Not just because 'antibody therapeutics' mostly work right away, they both protect individuals 'from' getting infected; as well as not spreading virus to others, if they're given as preventative rather than after symptoms start);
  • That means (unlike vaccines) the immune system isn't being tasked to mount a response only after cells have been penetrated by virus; my bias is to kill the virus, stop it in its tracks before or during earliest symptoms;
  • 'Growth matters' and to get that the US especially must emerge from this pandemic; and lead the world in distribution of 'useful' reliable tests plus treatments (antibody therapeutics more key than just vaccines; a problem that has been politicized by the funding priorities seen so far);
  • So, while conditions for some sort of pullback exist, with greater odds for overworked big-caps than small-caps or specialized stocks suppressed and ripe for rebounds soon; the January Effect may hold this a bit longer;
  • The biggest prospective destabilizing action remains Covid-19 itself; as a lot of value and growth projections 'presume' a modicum of true revival as well as likely pinning too much hope on vaccines alone.
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