In the audio below I discuss some of the biggest news stories of recent days, including whether people are too optimistic about market returns in 2021?
Articles referred to include
- Any pullbacks in stocks are buying opportunities as the S&P 500 sets its eyes on a target of 4,000 in early 2021, technical analyst Robert Sluymer of Fundstrat said in a note on Tuesday.
- A doubling of this fall’s trading range of 3,209 to 3,588 on a confirmed breakout above the September 2 high generates upside potential of 13% from Monday’s close, according to Sluymer.
- “Expect pullbacks to be short lived,” Sluymer said, adding that the current pause in growth and momentum stocks is unlikely to represent major tops.
After months of sideways trading, stocks look poised for a breakout thanks to Monday’s positive vaccine news and resulting stock surge.
Since August, the S&P 500 have been stuck in a 12% range bounded by an early September high of 3,558. But news of a successful COVID-19 vaccine revealed by Pfizer and BioNtech helped the index break through that upper barrier, priming it for a 13% surge into early 2021, according to technical analyst Robert Sluymer of Fundstrat.
Investors should expect a short-term pause to the current uptrend in stocks, given a more than 10% surge materialized over the past week after uncertainties surrounding the presidential election became less uncertain, he said in a note Tuesday.
But expect any pullbacks to be shallow and short-lived, according to Sluymer, who recommends investors continue to build exposure to equities on any periods of weakness.
Sluymer derived the 4,000 price target on the S&P 500 with a measured move approach. In this case, Sluymer identified the months-long 12% trading range in the S&P 500 of 3,209 to 3,588, and added that range to the breakout level of 3,588.
Sluymer’s case for continued upside in stocks is supported by daily momentum still building to the upside and a likely collapse in the VIX Index.
“We expect the VIX to collapse through year-end well into Q1 2021 supporting further upside in equities,” Sluymer said.
And while cyclical stocks have been driving gains in stocks this week, a pause in growth and momentum stocks is unlikely to represent a major top, Sluymer noted. Still, Sluymer says investors should add to cyclicals.
And for the longer term, the outlook remains bullish for stocks, according to the note, with a strong cycle backdrop pointing to the S&P 500 hitting 4,400 to 4,600 into 2022.
“Using the average 4-year cycle in a secular market of 100% to 110% as a guide, a move toward S&P 4,400 to 4,600 is not unreasonable in 2022,” Sluymer said.
2. Check Goldman Sachs’ top bets for next year: RIL, SBI, other recovery plays and alpha ideas
Goldman Sachs said last week that it expects India’s Nifty 50 to hit 14,100 points by the end of the next year 2021, raising India to ‘overweight’ among asian equity markets.
The move came months after Goldman Sachs’ bearish commentary that said that Nifty’s rally was not the end of the bear market that the world entered in March.
Along with Nifty, analysts at Goldman Sachs also see a positive set up for Asian equities where they expect 18% total USD returns in 2021. But the question remains how should investors plan their trades to capitalise on such gains?
“We classify our implementation ideas for next year under three broad categories,” Goldman Sachs said in the research note. The categories include structural themes such as large cap digital economy stocks, recovery plays including defensives and cylicals, and targeted alpha ideas which include upstream, downstream along with renewables.
Structural themes:
Goldman Sachs mentions two plays under structural themes. The first is the Digital Dozen play which includes 12 large and liquid structurally high growth tech stocks in the Asian region. “These digital economy stocks exhibit strong future growth prospects and superior profitability drivers. While these stocks trade at higher valuations relative to the region, we think the lower for longer rate environment will continue to support multiples for these long duration stocks,” they added. Under this category, out of the 12 stocks that Goldman Sachs has picked, there is only one India listed firm — Reliance Industries Ltd.
The second play under the structural theme is China specific. Here Goldman Sachs has picked stocks aligned with China’s long-term “Dual Circulation” strategy.
Recovery plays:
Here, the research note says global cyclicals vs defensives is a theme that Goldman Sachs is playing. Along with that, stocks where a strong earnings recovery is being eyed are also being picked. “At the micro level, as we expect earnings to recover strongly next year and into 2022, we think stocks where earnings recovery is relatively underpriced could potentially perform well next year,” the note said. Under this theme, Goldman Sachs has picked three Indian stocks — State Bank of India, Adani Ports & SEZ, and ACC.
Further, another theme where investors can take targeted cyclical exposure focusing on sectors that could benefit from the ongoing global economic recovery and also gain from the expected catalyst of a vaccine has also been advised. Here, stocks such as ICICI Bank, State Bank of India, BPCL, Bandhan Bank, Motherson Sumi Systems, and HPCL have been highlighted.
Under this theme, the first play that Goldman Sachs discusses is the margin divergence between upstream and downstream sectors. “ We think the margins for upstream industries will benefit more from rising commodity prices and inflation than the consumer-facing downstream industries,” they said. Here, ONGC, has been named as a ‘Buy’ rated stock. Indian Oil is one of the ‘Sell’ or ‘Neutral’ rated stocks under this play. With renewable energy likely to be in focus under Joe Biden’s presidency, Goldman Sachs believes that renewables will likely gain more investor attention and engagement in the coming year. Adani Green Energy is the only one India listed stock under this theme.
3. Tesla set to join the S&P 500 Index in December – CNN
New York (CNN Business)Tesla will join the S&P 500 Index, effective December 21, according to a Monday announcement from S&P Global. Tesla (TSLA), which is now valued at more than Toyota (TM), Disney (DIS) and Coca-Cola (KO), has a market cap of nearly $387 billion.
To be eligible to join the S&P 500, a company must be based in the United States, have a market capitalization of at least $8.2 billion, be highly liquid, and have at least 50% of its shares available to the public. Its most recent quarter’s earnings and the sum of its trailing four consecutive quarters’ earnings must be positive, as well.
In October, Tesla reported its largest quarterly profit to date in October, earning $874 million in the third quarter, excluding special items, pushing its income up 156% from a year ago quarter marked the company’s fifth consecutive quarter of growth.Tesla will replace an S&P 500 company, information about which company S&P Global says will be released at a later date.
The index committee says it’s also considering whether Tesla should be added all at once or in two separate tranches. There are over $11.2 trillion in assets benchmarked to the S&P 500, according to S&P Global, including $4.6 trillion of the total in indexed funds.
“Clearly this is a key positive for shares and indexing purposes and ultimately removes another question mark around the Tesla story going forward,” Wedbush analysts Daniel Ives and Strecker Backe wrote in a note to clients. Tesla shares were up more than 10% upon the news, according to Refinitiv.
In September, the S&P 500 stopped short of adding Tesla to its index of companies, instead adding Etsy (ETSY), Teradyne (TER) and Catelent. The three companies replaced H&R Block(HRB), Coty (COTY) and Kohl’s (KSS). Bullish investors were surprised by the news and held hopes the automaker would be added, after shares have surged more than 400% this year.
4. Singapore PM Calls for U.S.-China Truce After ‘Tumultuous’ Years- Bloomberg.
U.S. President-elect Joe Biden should look to develop an “overall constructive relationship” with China following “quite a tumultuous ride” over the past four years, Singapore Prime Minister Lee Hsien Loong said in an interview.
A new framework between the nations would allow both countries “to develop the areas of common interest, and constrain the areas of disagreement” on issues such as trade, security, climate change, North Korea and non-proliferation, Lee said in an interview with Bloomberg Editor-In-Chief John Micklethwait at the New Economy Forum. Singapore’s leader also rejected any attempt to divide nations “Cold War style.”
“We all want to work together with the U.S., we all want to work together with other vibrant economies, we would like to cooperate within the region,” said Lee, who has already offered his congratulations to Biden. “I think not very many countries would like to join basically a coalition against those who have been excluded, chief of whom will be China.”
Lee has been one of the most vocal global leaders calling for the world’s biggest economies to avoid a destructive clash that could force smaller countries like Singapore to choose sides on everything from trade and technology to Covid-19 vaccines and territorial disputes in the South China Sea. A city-state dependent on trade, Singapore supports a strong American presence in Asia by allowing the U.S. to use its military facilities while also counting China as its top trading partner.
Lee said while Beijing doesn’t want a “collision” with the U.S., Chinese officials may not be prepared to cede much ground. At the same time, he said, President Donald Trump’s “America First” view of the world has changed perceptions both within the U.S. and overseas about how broadly the world’s predominant superpower has an interest in maintaining global stability.
“It will take some time I think for America to come back to such a position, and for others to be convinced that it is taking such a position,” Lee said. “It may never come back all the way, certainly in the short term and certainly in terms of its relations with China.”
Citing the punitive tariffs Trump placed on China that were maintained in the “phase-one” trade deal reached in January, Lee said it would be difficult for any successive U.S. administration to take them away.
“There’s some elements in the administration who definitely did want to make moves which would be very difficult to reverse by the subsequent administration, and which will set the tone for the relationship for a long time to come,” Lee said.
Singapore was among countries that resisted U.S. pressure to ban China’s Huawei Technologies Co.from its 5G networks, with its regulator letting telecom operators decide which vendors to choose. They ended up picking Huawei rivals Ericsson AB and Nokia Oyj to be their main 5G network providers. “If I say I want absolute security, that’s not to be had in this world,” Lee said.
The Singapore leader, who along with his father Lee Kuan Yew has run the Southeast Asian nation for much of its existence, also noted that anti-China sentiment in the U.S. has gained deep bipartisan support beyond Trump.
“The consensus to see China as a strategic threat is almost becoming received wisdom and unquestionable in the U.S.,” Lee said. “And so it will be very difficult for any administration, whether it’s Biden or on the outside chance, Trump, to disregard that and just proceed as if the last few years had not taken place.”
The New Economy Forum is organized by Bloomberg Media Group, a division of Bloomberg LP, the parent company of Bloomberg News.
Here’s what Lee said on other key issues:
Vaccines
- While larger countries have ensured they’re first in the queue, Lee said the World Health Organization also makes a “very valid point that the best way to get the Covid-19 under control is to have a rational scheme of priorities, to distribute the vaccine to the places where it will make the most difference to the outbreak.”
- “I don’t think you would have finished protecting the world’s population within the next year. Furthermore, you’re not sure what risks and problems may arise. And you have to learn as we feel our way forward. So we are not in the best case situation, but at least with where we are now, it has been possible for the science and the technology and the production to come up with a number of vaccines in record time.”
Trade
- The Regional Comprehensive Economic Partnership “is a significant step towards reducing trade barriers and facilitating trade between these economies, and also a significant statement that in Asia, whatever happens in the broader world, we would like to promote regional integration and we do believe in a model of cooperation and win-win trade, rather than in going it alone and beggar thy neighbor, which in these troubled times is worth quite a lot.”
Succession
- The pandemic has presented a “huge challenge for Singapore,” Lee said. “It’s existential, really, both economically as well as from a public health point of view, and I think it’s my responsibility to see us through this crisis before I hand it over in good shape — into good hands, and I hopethat will be before too long.”
