A New Year Market Update
Hope you’re doing well. As we start off the new year, I thought I’d quickly share a few things I’m keeping an eye on from a market perspective. Feel free to reach out if you want to discuss or catch up anytime.
1. Considering the Shift to a Joe Biden Presidency
After Election Day, the US equity markets experienced a sharp rally, coming on the heels of multiple vaccine announcements. Early chatter going into the new presidency has created buzz among several stock sectors:
• Infrastructure: Anticipation of a big infrastructure spending bill that would send capital into railroads and highways could trigger interest in companies that are involved with infrastructure development. Combine this with the need for jobs, and this becomes a sector to watch.
• Solar & Wind: Lobbyists wasted no time pushing their agendas after Election Day. The solar players are looking for the new administration to rescind tariffs on imported solar cells and modules. The wind industry is looking for the government to raise its procurement targets for renewable energy and all for more offshore wind farms.
Both wind and solar lobbyists are pushing to have new tax credits created that would boost their industries, and these credits would require congressional action.
2. Sector Rotation Potential.
We have seen substantial moves in Large-Cap technology-related names throughout 2020. Stay at home tech stocks like Zoom Video Communications (NASDAQ: ZM) have seen explosive growth since the beginning of the pandemic. We have finally seen this market rally broaden out to more sectors during the 4th quarter of 2020; which could be constructive for the major indices going forward.
3. Rising Commodities & Metals Prices?
The price of gold had a strong showing in 2020, and will be monitored closely for signs of continued strength or weakness. Traditionally, a few factors that affect the price of gold include inflationary pressure, times of uncertainty, and interest rates, among others. As the value of the US Dollar has weakened throughout the majority of 2020, we have seen gold prices higher since the beginning of 2020 via the SPDR Gold Trust ETF (NYSEARCA: GLD). The Invesco DB Agriculture Fund (NYSEARCA: DBA) has also moved higher since its lows in June 2020. Agricultural commodity prices have been mostly stagnant for an extended period of time, so we are watching for value opportunities here.
4. Restaurant & Travel Sectors – Pent-Up Demand?
Given all of the progress on the vaccine front, there could be significant shifts in consumer behavior throughout 2021. Clearly, the travel and restaurant sectors have been some of the most adversely affected by the virus. Many have adapted to delivery based models, utilizing companies like Uber (NYSE: UBER) and Doordash (NYSE: DASH). However, with this shift, a restaurant’s bottom line can be affected while the delivery infrastructure companies get their cut. Will the vaccine provide the confidence needed for people to return to dining out? Will the municipalities that have the most stringent restrictions on dining out tighten them or relax them? These factors and more will certainly contribute to the capital inflows to the restaurant sector in 2021.
The travel sector is also experiencing similar uncertainty surrounding anticipated consumer behavior. In an October 2020 survey commissioned by Hilton, 95% of respondents who travel said they miss traveling, and 94% plan to travel once restrictions are lifted. Those are large percentage numbers. As many Americans have experienced recent holidays without family and loved ones, this demand could be further reinforced. Industries to watch include airlines, hotels, casinos, cruise lines, and online travel services. In its December 2020 IPO, Airbnb (NASDAQ: ABNB) created around 100 billion in market capitalization; surpassing the combined market capitalizations of Marriott, Hilton & Hyatt combined. Wow. Is this a sign of further strength to come in the space?
These are just a few of the topics that are at the forefront of the investment community at this time. If there is anything that I can do to help, please give me a call 631-393-2888. As always, I’m here when you need me.