Cautious Optimism For 2021

The market finished 2020 on a decidedly more cautious note than it spent most of the year that saw mind-boggling gains for the NASDAQ, strong gains in the S&P 500, the Russell 2000, and pedestrian gains in the Dow Jones Industrial Average (DJIA). 

To see the chart, click here.

The market finished the year with the greatest number of winners. Still, nearly 40% of the market closed down for 2020. But the trend improved in the last quarter and the average gain took off, and that is very encouraging - 302 winners with an average gain of 31.6%.

To see the chart, click here.

But 2020 was a tale of two markets before and after March 23. 

Measuring the market from the March 23 lows, it was one of the best rebounds ever. Add in sizzling investment niches and themes,  it felt like there were fireworks each session, especially in the public offering arena.

My Beautiful Balloon

It was up, up, and away for the Initial Public Offerings (IPOs) market (traditional and Special Purpose Acquisition Companies (SPACs)). Most stumbled into the end of the year, and that’s great news. 

To see the chart, click here.

Still, it was interesting that some of those hot storylines cooled ahead of the Times Square Ball’s lonely descent, including those sizzling IPOs.  

There is no doubt these names got ahead of themselves, but the question remains: which IPO names will regain equilibrium and turn higher, especially with another batch of hot new issues in the queue?   Several high-profile or super-hot offers slumped into the end of the year, well off their highest level.

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One moral of the story is do not chase these bad boys unless you are nimble. The more important development is that some are moving into a fresh long-term investing range.

Earnings releases will inform from here on out, in addition to individual challenges, like beating back short attacks, as several names are under the microscope with calls for massive declines (see Fubotv (FUBO)).

There was a niche of hot IPOs that got very little media coverage despite science and discovery being a hallmark of 2020. Biotechnology and Health Care IPOs rocked without any fanfare while representing great hope for improved wellness for mankind.

I admit finding biotech winners is tough for me, as there are factors unique to the sector.  Without a doubt, it’s the hottest area in the market that never gets discussed. There is a race on Wall Street for the best names, resulting in monster payouts to analysts with tight relationships with companies going public or looking to raise money.

That was one of the characteristics of the tech bubble. While I am not saying this is a repeat when it comes to excesses, perhaps too many folks are focused on Snowflake (SNOW).

Investable 2021 Themes

I outlined these themes in my special 26-page Payne’s Perspective (ask your rep for a copy or research@wstreet.com).

Data

·         Communication services (XLC)

·         Software (Software-as-a-Service (SaaS) and Salesforce (CRM))

·         Semiconductors

Drones

Environmental, Social, and Corporate Governance (ESG)

·         Electric Vehicles (EV)

·         Solar

Industrial Metals

Farm Economy 

There are other hot areas in the market, including Bitcoin, but these require nimbler investment abilities and wider tolerance for risks and volatility.

Portfolio Approach

We are fully vested in our Hotline Model Portfolio.

Today’s Session

The markets are starting the New Year with some of the same themes as 2020.  The futures are pointing to a positive open.  The greenback is down again. Momentum continues, and Tesla (TSLA) is rocking on news of record Q4 deliveries. 

Expansion in manufacturing is continuing around the globe.  Here are home, we will get IHS Markit Manufacturing data at 9:45a ET and Construction Spending at 10a ET.