Nearly $45 billion in net inflows rushed toward equity funds this week, reflecting the optimism from resolution in two events that have plagued the market all year – the elections and lack of vaccine. With both these risks out of the way, the markets have begun to rally again and will likely continue into the end of the year. Admittedly, the market’s strength this week in other ways seemed incongruous. The gains were distinctly led by cyclical stocks geared tightly to a reopened economy, even as the daily news flow was of an alarming Covid-case surge and re-imposed business restrictions and social-distancing orders. Covid remains the fly in the ointment as the number of cases of those infected rose from 100,000 per day last week to 184,000 on Friday this week and projections are that it will get to 300,000 per day by the end of year.
Only time will tell if the rally is going to be brief or will it be sustained into 2021.
Future Wealth’s View
What the market needs most is lack of uncertainty and low volatility. With the Biden Presidency, we will see an end to the random tweets that have whipsawed the market. And the expectations are that by middle of 2021, there will be sufficient numbers of the population vaccinated that we could begin to see some normalcy return to daily life.
If these two tenets were to hold true, becoming aggressive in one’s investment strategy would be a judicious move but, with all the caveats of unexpected events causing disruption. At Future Wealth, we are relieved that the White House is now back in good hands and that coupled with the prospect of return to life as we knew it, has prompted us to begin rotating out of defensive stocks into more growth oriented names in our client portfolios. Of course, only time will tell if our hypothesis and timing are correct or not.