Market Musings 02/01/21: New Year, New Themes?

2nd Jan '21 by Edmund Shing

6 comments 675 reads

New Year, New Themes?

Summary:

Sentiment has cooled since end-November, and seems far less euphoric today despite a further December advance for stock markets
Clean Energy has enjoyed an amazing run in H2 2020, but now does concern me in the short-term as a nascent bubble
Leading themes in 2020 that look good for 2021 include: Semiconductors, Biotech, Video games, Gold and Silver miners, Uranium
After two strong months for equity markets, January could be more difficult - a case of better to travel than to arrive?
The UK market could be an exception, however, given the potential for a post-Brexit deal catch-up to other stock markets

Sentiment has cooled despite continued market advances

A couple of weeks ago, pre-Christmas, I had flagged my worries that the stock markets were showing signs of euphoria, which is often a good contrarian signal to turn more cautious.

But looking at sentiment indicators today, I am curiously reassured. On the one hand, global stocks continued their good run of form, rising nearly 4% over the month of December (in USD, just +1.3% in GBP given the strength of sterling over December).

December 2020 a good month for stocks, even after a bumper November

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Source: tradingview.com

But on the other hand, sentiment indices such as CNN’s Fear & Greed index have eased back to Neutral from a position of Extreme Greed at end-November.

CNN Fear & Greed index has eased back to Neutral

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Source: cnnmoney.com

TD Ameritrade’s IMX Investor Movement index also shows little sign of heavy retail investor buying of stocks in the US in November, and actually showed a little net selling overall.

IMX Investor Movement index fell in November

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Source: TD Ameritrade

So here again, in terms of what retail investors actually did, there is little sign of euphoria in terms of their buying and selling activities. I find this reassuring and a good set-up for 2021, after what has been a most atypical year for investors in 2020.

Leading themes in 2020

In considering what themes might do well in 2021, it usually pays to first consider what themes are already performing well in 2020.

The chart below gives a snapshot of some of the leading investment themes in 2020, illustrated by way of US-listed ETFs. Strong themes…

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RebelChatRoom

2nd Jan '21

I'd have thought retail would be one of the places to be in 2021. Absolutely hated by most, low expectations, everybody viewing the high street as dead. Yet get through the next few months and a vaccine and shopping may be the new hobby of choice for 2021, socialising, touching and feeling products etc, simply because many haven't been able or allowed to do it for a year. A contrarian view perhaps but that's not often a bad thing. Perhaps we might also remember what we liked about high street shopping over online shopping even if it only lasts a year or two.

Ben1

As you say a very contrarian view. I think there might be a short term bounce for the high street, but I think it will be short lived. Society has clearly gone over to e-commerce in a big way. It was already happening but the demise of much of the high street was accelerated in 2020.

So I think you would have to be very selective on retail, but good luck. Personally my only retail stock is BOO

Sean Dunderdale

Don't underestimate peoples need to physically interact as part of the shopping process. In the Uk when Primark opened over xmas, some shops opened 24hrs to meet demand. I think the brands that survive will see a decent return in foot traffic once covid threat recedes.

donald pond

3rd Jan '21

I went shopping in Chichester just before Xmas and was struck by how tired retail looked. A lot of shops shut and many in the midst of chaotic sales. It felt like COVID had upset inventory and shops were full of the wrong stuff. There may be hope, but business rates need to be scrapped and the high street completely rethought. But we’ve been saying that fir at least a decade

William K

4th Jan '21

Many thanks Edmund. Yes, Clean Energy is forming a nascent bubble, but it's been trading above the 5 day EMA for 14 months apart from the Covid dip last spring. I continue to hold ICLN but I'm moving up my stop loss to protect the profits. I hold XBI which is retracing and could be a good buy when it starts to go up again. Your advice over the last year has been shrewd and I owe a substantial portion of my profits to you. So thanks again.

john2

Just to thank you for these regular postings Edmund. They always give me a thought-provoking alternative view of where the markets are likely to go.

After reading your musings last year I bought the following:

Alphabet +13%

Blackrock World Mining +14%

INRG ETF (clean energy) +18%

Vaneck Vectors ETF (computer gaming) +9%

Microsoft +1%

That's five gainers and no losers.

Market Musings 02/01/21: New Year, New Themes?

New Year, New Themes?

Sentiment has cooled despite continued market advances

Leading themes in 2020

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Edmund Shing

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