Deep Correction Or Temporary Pullback?
Lots of raised eyebrows on Friday after the unveiling of incoming President-elect Joe Biden’s new proposed stimulus plan failed to really give risk assets any meaningful boost. Is the move lower in risk assets the start of something bigger or just another temporary pullback?
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There is something that we always need to keep in mind, and that is that in every market there will always be perma-bears calling for the end of the world and perma-bulls calling for the start of a new bull market. We prefer to focus on the information that we have in front of us and rather approaching the market dispassionately.
For that reason, we see more reasons that this recent sell off we’ve seen on Friday is part of a more temporary pullback and not a rehash of what we saw in September 2020. What supports this view?
Firstly, global vaccinations are sitting at almost 40 million people (almost half of total global confirmed cases). Secondly, the very low base effects from data in Q1 and Q2 of 2020 means it will be hard for incoming data not to show a reflationary environment in the first half of 2021. Thirdly, even though there are some tax concerns and some saying we might not see the full $1.9 trillion stimulus package being approved, that doesn’t take away the fact that more stimulus is on the way.
There are of course other things to think about like volatility and behaviour in the options market and recent bad labour and retail sales data, but all of these are unlikely to change the market’s outlook for 2021.
More on what this means for various assets and how we are looking to take advantage of that in our week ahead video
Highlights of the video:
00:15 – Current Baseline
02:30 – Baseline expectations for the upcoming week
08:15 – Sentiment Shifts & Trade Plan
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