Virus. Vaccine. Volatility. This strategist says 2021 will be the year of the ‘V,’ and here’s how to play it.
It’s Christmas Eve, which marks the start of what has traditionally been the best seven-day sprint for stocks of the year — aka the “Santa Claus rally.” So far there’s been a promising start to that ritual, but as this market still belongs to 2020 for a few more days, anything could happen.
One event that has already happened before Christmas is an historic post-Brexit trade deal announced Thursday, four and a half years after a referendum that defined an era of British politics.
Investors are also watching the fate of a $900 billion financial aid bill to help Americans cope with the coronavirus pandemic, though President Donald Trump has indicated unhappiness over the package.
Onto our call of the day, which says get ready for 2021 and the “year of the V.” It comes from Vincent Deluard, global macro strategist at financial services group StoneX, whose collection of V’s includes a still-raging virus leading “to one last deflation scare in the first quarter.”
Deluard warns of a brutal first three months of the year in his December newsletter, predicting record COVID-19 infections and deaths and lockdowns on both sides of the Atlantic. He sees grim economic data for December and January triggering a selloff for the big cyclical assets of gold and copper and central banks jumping in to head off deflation.
But then comes relief in the second quarter, with vaccines unleashing pent up demand, leading to rapid reflation. That’s amid disrupted supply chains, demand returning to real goods, soaring consumption due to record net worth and low debt-servicing costs, and then massive cuts in big oil company spending budgets, squeezing the oil market, he said.
Deluard’s big advice? “Investors should start accumulating dirt cheap inflation-sensitive assets now. However, it may prudent to hedge cyclical risks with the ‘antigrowth trade’ in the first quarter: long gold, health care and the yen against a short position [bearish] in oil futures,” he said.
“In the second half, investors should focus on the best reflation and reopening trades: Latin American equities (unhedged) and the IBEX 35 Index, respectively,” said the strategist.
Here are more of his V’s for 2021 — valuations will matter, value stocks will finally shine, volatility becomes the new normal, with the VIX or Cboe Volatility Index VIX,
With that dear investors, have yourself a merry and safe little Christmas.
The markets
On a half-day for markets, U.S. stock gauges DJIA SPX COMP were on track for modest gains on Thursday, the final trading day of the Christmas week, with activity expected to be subdued due to the holiday. European markets SXXP,
Read: Here’s what a Brexit deal means for markets
Asian stocks finished mostly higher, except in China as Alibaba BABA,
Read: Which markets are open and when over the holidays
The buzz
A post-Brexit trade deal between the U.K. and Europe may finally be here, in the wake of marathon talks.
House Republicans blocked a bill from Democrats that would send $2,000 checks to individuals as part of a coronavirus financial aid package, up from the $600 agreed to in the measure Congress approved earlier this week. President Donald Trump has said that $600 is too meager.
There may be some good news on the COVID-19 front, as a pair of studies indicate having the infection could protect against reinfection. That’s as more than 1 million Americans have been vaccinated. Meanwhile, the U.K. is expanding its lockdown as a second, even more contagious strain, believed to have originated from South Africa, spreads.
Digital payments group Square SQ,
Nuro has become California’s first company approved to operate a driverless delivery business.
President Donald Trump issued more pardons on Wednesday, bringing the total to nearly 50. Former campaign chairman Paul Manafort and Charles Kushner, the father of his son-in-law Jared are among the latest recipients.
The chart
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