Pick your spots, ladies and gentlemen. You don’t have to be a millionaire to make money in the market. Just don’t bet the house. And never open a margin account, unless your’re a millionaire, or working for Barclays.
The stock market knows only good news. Even today’s headlines about weekly jobless claims rising by 1.1 million won’t last to pull the rug out from under equities. Bears are in a tizzy over record high debt and the Fed. We know it’s unprecedented. But it’s there and a backstop to serious losses in stocks. There is no sense crying over spilled milk, as the cliche tells us. The economy is weak, thanks to forced shut downs. It’s not pre-pandemic time.
But the coronavirus pandemic no longer holds a fearful grip on our collective imaginations. With some form of “herd immunity” still in question but looking good in parts of the world and even in New York, fears of crowded hospitals and rising death tolls are starting to subside. Given those circumstances, the market has no place to go but up, with bumps along the way.
The S&P 500 hit a fresh record high on Tuesday, having rallied around 51% since the pandemic hit hard in March.
The dollar continues to decline and emerging markets like Brazil and Russia are reaping the benefits of that. A weaker dollar is always good for emerging markets. Stocks rise, almost always, if you can get the timing right.
The dollar index fell 0.6% on Tuesday, taking its losses since its March peak to over 10%.
Central banks will remain in stimulus mode for the foreseeable future, supporting risk assets and creating opportunities and challenges for investors of all sizes.
Mark Haefele, the chief investment officer for UBS Global Wealth Management sees further upside in stocks. “There is no obstacle to further gains,” he says.
The most attractive returns in the next phase of the recovery will likely be in portions of the market that have lagged so far.
It’s not going to be just a Tesla TSLA -0.5%/FANG and China market.
Haefele wrote in a note to clients on Wednesday that they should consider buying shares of companies involved in 5G and other enabling technologies as the U.S. is likely to get more aggressive in this space.
The next leg up in the market may be driven by beat-up sectors that have trailed behind in the rebound, such as cyclical and value plays.
Then there’s the election, which promises market volatility with political surprises that spook investors.
On one hand, some investors think a Biden White House will go easier on China in terms of tariffs. China stocks may have benefited somewhat from that, though most of the gains there are based on domestic stimulus and the retail trader.
On the other hand, some investors are worried that a Biden victory would mean a total repudiation of the Trump years, putting Democrats in charge of both Houses of Congress, in what they see as a worse case scenario. Democrats would punish the stock market with sweeping tax increases on the wealthy and on companies, many in the middle market rather than global firms who are more adept at lowering their tax rate.
The current Biden tax plan is also largely hated by Wall Street, of course.
“If enacted, the Biden plan would do significant damage to the economy, as lower corporate profits would drastically eat into the earnings rebound that so many investors are hoping for in 2021,” says Randy Swan of Swan Global Investments.
Then there is the bickering of the final leg of coronavirus relief money to be appropriated by Congress. The Democrat and Republicans are battling over this now more than ever, probably because the election is two and a half short months away.
“A deal that includes state and local bailouts is worse for the market than no deal at all,” says Brian McCarthy, chief strategist for Macrolens, an investment research firm in Stamford, Connecticut. He thinks that the $2 trillion to $3 trillion the Democrats want to dish out to states like California and New York would enable them to keep the economy on lock down. New York is still in its re-opening phase, but key sectors of the economy are closed. Broadway and all entertainment venues are closed, for example, killing tourism and holiday traditions for millions. California jump started partial lockdowns in 30 counties last month.
“No deal is no big deal,” McCarthy says.
Gold has been a favorite this year, and though it has lost some of its shine, UBS still likes it. Gold is up around 3o% year-to-date.
One key reason for gold’s outperformance is declining bond yields. A further fall in real yields will help gold.
“Risks such as new waves of Covid-19, further policy tweaks by the Federal Reserve, and rising tensions between the U.S. and China all underpin our (bullish) view,” says Haefele. “Given that gold is priced in dollars, we expect dollar weakness to help.”
This article originally appeared on Forbes.
