Here is an excerpt from our good friend Peter Boockvar and his website the Boock Report. It’s a well summarized look ahead to the markets in 2021.
Click here to visit The BoockReport website.
This will be my last day writing until Wednesday January 6th. I want to thank you very much for taking out the time to read my daily missives as I know your inbox gets filled with a ton of stuff. I know that you don’t agree with everything I say but I appreciate at least giving me a listen.
Cheers to a 2021 that will mostly rid us of Covid-19 and to the vaccines that will save lives, to being able to go outside without wearing a mask and not needing one inside, to again eating indoors without worrying about ventilation and distancing, going to a concert, seeing a baseball game in person, to spending more time in person with family and friends, to seeing in person many of you, having meetings in person and to have many small businesses resurrect their livelihoods either growing again their existing business or finding the capital and help to create a new one.
After bouncing back above the 90 level last week, the dollar index is retesting that level again, down by 1/3 of a percent today. The weakness this year has sort of gone under the radar with everything else going on but I think it has the potential of becoming more relevant in 2021 as this is the initial venue that reflects market thoughts on the ever widening US debts and deficits. Further weakness of note would then have implications for inflation and long term interest rates. As for long rates, I know the consensus is for them to move higher as the economy rebounds further with a vaccine but I think people will be surprised as to where they go. I think 2%+ is doable and that will be in part to quicker economic growth but there will be a continued rise in inflation expectations as part of that.
As for stocks, I think the easy part in 2021 is forecasting the direction of economic growth and earnings. The hard part will be predicting what the right P/E ratio will be. Where rates will go and how the Fed responds will dictate that. Should it be 22x? 18x? 15x? 25x? There is a wide dispersion in possible SPX outcomes depending on that. As for individual groups, I continue to like commodity stocks (oil/gas, ag and copper to be exact), precious metals, bank stocks, value stocks that technology and Amazon haven’t killed off, some travel and leisure names, emerging Asian stock markets and the UK and Turkey too. I also expect the US dollar to convincingly break below that 90 level.