Note Précis Jan. 14,2021: Q1/2021 – One Hundred Critical Days (and Nights) for Policy, Health and Earnings.

Note Précis Jan. 14,2021: Q1/2021 –  One Hundred Critical Days (and Nights) for Policy, Health and Earnings. On policy, health and economic heft, we see three nodes of global impact namely, the United States, Europe and Asia. After its January 20, 2021 inauguration, the incoming U.S. administration will have its work cut out to address the internal rifts exposed again by the storming of Congress. It also has global rifts to bridge in defense, economic and even climate change policy. Vietnam and then China have leadership policy meetings in February/March 2021. China has been flexing on borders and policy alike, not just with the United States on global rivalry but both with neighbors and those more distant such as Australia and Canada. With European leadership change and elections in 2021 especially in Germany, electronic interference, such as via social media, remains as overhang.

In daily life and on health policy, the global impact of the Covid-19 pandemic continues. Companies have competitive revenue and earnings challenges. Margins likely peaked in late 2018 and consensus seems too optimistic, for example, in expecting that the peak earnings of 2019 for the S&P 500 may swiftly be exceeded by 2021. Irrespective of valuation complacency in capital markets based on huge quantitative ease, none of above issues will likely take a break. It makes the next one hundred days (and nights) crucial and likely volatile.

The names may change but market characteristics do not, including lax at mature phases when money is easy, however derived. Irrespective of or because of quantitative ease, credit risk appears being eschewed by consensus as of concern. We instead favor at the asset mix level, underweighting fixed income while favoring buildup of shorter duration and of precious metals as instability hedge.

In equities, complacency presently appears in the high valuations in broad equity indices such as the FTSE All World, MSCI World and S&P 500 as well as on credit with in new issuance now, funding via acceptance of Special Purpose Acquisition Corporations (SPACs). We favor diversification for several reasons, including deliverability at the business level and a portfolio choice to have less emphasis on the concept euphoria that seems favored in momentum tilts.

Unlike recent momentum markets, we favor better balance between growth and value components. In geographic and sector rotation, we see U.S. leadership and restructuring opportunities in Japan. Resource rich Australia and Canada could lead earlier than in typical cycles. For growth in emerging markets, we favor Asia.

The Financials are likely to be crucial with advantages still for those earliest, most aggressive and continuous in restructuring. In growth, we diversify by overweighting Healthcare, capping Information Technology and Consumer Staples as underweight. In cyclicals and despite consumer heft in most economies and early cycle tradition, we overweight Industrials, Materials and the industrial part of Real Estate over Consumer Discretionary areas as underweight. With urgency and scale, governments are also likely to engage in infrastructure. Unusual opportunity appears in Energy in its strongly financed entities for whom distressed assets and alternate energy are business options. Afterall, they moved from Texas to Saudi Arabia when it was thought to be just a desert.  StrategeInvest’s independent consultancy operates as Subodh Kumar & Associates. The views represented are those of the analyst at the date noted. They do not represent investment advice for which the reader should consult their investment and/or tax advisers. Any hyperlinks are for information only and not represented as accurate. E.o.e.