QUARTERLY INVESTMENT OUTLOOK: JANUARY 2021

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  • We view the recent release of Pfizer's (core holding) COVID-19 vaccine as a potential "game changer" for equity investors. Our analysis considers the fact that widespread public availability of the treatment will probably not occur until the Spring 2021 at earliest. Health care workers are already receiving the vaccine.

  • The pandemic has weighed heavily on several value sectors including Financials, Energy, Industrials and Materials. Despite the general level of market overvaluation as shown by our analysis of the Buffett Indicator, the markets uptrend is intact. Other positive market factors are the steep yield curve, tight credit spreads, low yields, a weak dollar and global recovery. The recent breakout of Emerging Markets to a 10-year high validates our cautious optimism for a continuation of this bull market into 2021.

  • Rising yields in 2021 should contribute to an increase in money velocity and ultimately assure a sustained economic recovery. While the pace of recovery will likely remain tepid, due to both sluggish gains in both the labor force and productivity, inflation should rise and may exceed the Fed's 2% price target. Rising oil prices should gradually feed into the headline data for consumer prices.

  • According to a recent Horizon Kinetics 3rd Quarter Summary, the transition from fossil fuels to renewables will likely take longer and cost more than is generally believed. In order to achieve net zero emissions by 2050 liquid fuels consumption is projected to decline by roughly 10 mil. bbl/d by 2030. Under a business-as-usual assumption global liquids consumption will likely flatten out at 100 mil. bbl/d over the next 10 years.

  • A 65% decline in oil rigs ytd all but guarantees oil production will decline well into 2021. With oil demand expected to recover to pre-pandemic levels by 2H 2021, the market should be in a supply deficit throughout next year according to Goehring & Rozencwajg's latest forecast.

  • As shown in the chart to follow our weekly momentum studies show the S&P 500 is challenging the upper trend line which has served as major resistance over the past 5 years. Meanwhile, price momentum appears to be turning higher which is bullish for equities over the intermediate horizon. Global ex-U.S., not shown, has a much more constructive price/momentum profile.

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