The 2020 stock market will be studied for years not just by market watchers and economists but sociologists, psychologist, and futurists. The stock market reflects our knowledgeable subconscious, which can often go completely opposite of how we feel about today, as it focuses on the future.
That was the case in the spring as Covid-19 was spreading and headlines screamed the worst was yet to come for the economy and stock market.
While the rebound off the lows has been admirable, the notion “the market” is up is a huge misnomer. Market breadth is among the worst ever for a positive year, as 40% of the names in the S&P 500 will finish the year in the red.
This presents a dilemma for investors that wonder if they should hold the winners and ride the wave, rotate into the also-rans on the hunch they are due to rebound, or maybe move to the sidelines on a similar guess.
The answer: Own stocks of great companies growing top line organically, enjoying pricing power, taking market share and history of management execution.
To see the chart, click here.
Market Not Too Crowded
The great news is there was so much fear, skepticism, and delay, that despite a flow spike into equities late in the year, it’s the only major asset class that saw net outflows in 2020.
So, while talking heads kept talking about TINA (no alternative), in reality, a lot of money was flowing out of equity mutual funds and ETFs.
A lot of fresh cash came in to buy up new issues, but that orderly cash sitting on the sidelines was focused on bonds. This is really good news, as there should be a shift into equities in 2021.
To see the chart, click here.
There is so much cash on the sidelines in household savings accounts and corporate coffers that will pour into the economy next year.
The vaccine will be more widely distributed, and the media will speak more optimistically about the country. Events and trends that would have been seen as glass half empty, or broken, will be seen as half full and brimming.
Portfolio Approach
This morning, we sold a name in Consumer Discretionary and added to Materials. We are fully vested in the Hotline Model Portfolio. If you are not a current subscriber to premium Hotline Service, contact your account representative or email us at Info@wstreet.com and start off the New Year taking control of your future.
Today’s Session
Initial jobless claims came in well below consensus at 787,000 and continuing clams drifted lower to 5,219,000; which was better than anticipated.
To see the charts click here and here.
Thank You
This was an amazing year in so many ways. The difficulties are well-documented, and for too many, the lingering pain will continue for years to come – maybe for the rest of their lives.
I was somewhat shocked in March and April when our business erupted higher. Maybe, I should have seen it coming. In recent years, subscribers have asked what to buy when the market dipped rather than saying they wanted to close everything.
But this was a monster reversal, and I think it speaks volumes for the freedom individuals seek in all facets of their lives.
People are not taking the bait when media says the end is near – sell everything. People are not taking the bait when the experts say they shouldn’t own a home. And people are not taking the bait when Wall Street says you cannot beat the market, so just hand us your hard-earned cash, and we’ll get you four or five percent a year. You know, nice and steady, right?
It worked in 2000 when everyone sold and lost everything.
It worked less in 2009 but enough that tens of billions of dollars in stocks were sold into the bottoming process for unnecessary losses.
It did not work this time.
Congratulations subscribers.
I will not always be right. You know my team and I will work hard and try our very best, every single day. I appreciate and honor your trust.
Happy New Year
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