Merrill ser tegn på en vending for markederne i 2021, især for industrivirksomheder og producenter af forbrugsgoder. Dykket i high-tech-virksomhederne den seneste tid tager Merrill som et naturligt fænomen. Men stimuli vil begynde at virke, og virksomhedernes indtjening vil stige, så det giver grundlag for positive overraskelser i det nye år. Merrill tror, at vi befinder os i det tidlige stadium af en langstrakt og global fremgang. I en sådan fase er der volatilitet, krydret med skepsis, men Merrill tror på, at drivkraften bliver overraskende gode resultater i virksomhederne i løbet af det næste år eller halvandet. Investorerne skal bare holde ud.
The Momentum Swing Across the Plains
We do not believe this latest sharp momentum swing led by technology and “innovative” healthcare stocks is the beginning of a sharper downturn.
In fact, we view this “correction” as a much needed and healthy phase that bull markets tend to have especially in the early stages when the advance is still being viewed with a high level of skepticism.
These same types of investors were largely the reason why 80 percent of the Nasdaqn constituents were above their 200 day moving average levels a week ago and why the U.S. Technology sector at a $9 trillion market capitalization, according to BofA Global Research, surpassed the entire equity market cap of Europe including the UK and Switzerland.
The support base of profits should rise, in our opinion, and catch up to the rise in valuation in the coming months.
At this point, the clarity of a low discount rate (see the Federal Reserve’s latest communication) for longer mixed with unprecedented stimulus and liquidity for a long period of time and a rise in profits globally should create a double tailwind to equities and specifically relative to bonds.
This creates a powerful compounding effect that coupled with strong operating leverage in the corporate sector is likely to catch investors by surprise in 2021.
Housing is driving the bus in the U.S. (CIO overweight-rated) as technology and healthcare stocks (CIO overweighted) compound attractive free cash flows. The earnings yield of the S&P 500 (the inverse price to earnings multiple) is priced at about 7 times that of the 10-Year Treasury yield with cash yields at close to zero percent.
Reflationary policies and attractive relative valuations are energy to an asset class like equities which rely on the compounding of future cash flows.
The industrial sector (CIO neutral-rated) and consumer discretionary (CIO slight overweight-rated) are next at the depot in our view as global manufacturing picks up, the recovery in the consumer sector takes further
hold, and multinational profits benefit from the weaker dollar and improved growth overseas.
Cyclicals in general are likely to grab some headlines from technology and healthcare but not all of them, in our opinion.
The non-U.S. (CIO neutral rated) arena is being pulled up by Europe but more time is needed for the recovery to gather steam.
Emerging Markets (CIO Underweight rated) are still struggling with the virus and their collective economic growth outlook is not yet showing signs of an upward re-rating.
We expect the equity risk premium in the U.S. to fall further in the next 12 months as some of the macro risks fade and profits rise (even in the face of uncertainty regarding the election). This should also help support upward phases of the broader equity indices as well, in our opinion.
Active management and more frequent and diversified rebalancing should take on greater importance as the bull market grinds onward.
We believe we are in the early stages of the next long-term synchronized and global economic advancement and bull market. Early stages contain periods of volatility while skepticism battles the transparency of the global recovery.
We are now moving into the stage in which a fundamental catalysts is needed for the next leg up. We believe this catalyst is a positive profit surprise in the coming 12 plus months.
Stay the course through the plains.
