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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