December 3, 2020
Review the latest portfolio strategy commentary from Mike Gibbs, managing director of Equity Portfolio & Technical Strategy.
November equity market returns were for the record books, as the S&P 500 posted a 10.75% gain, the Dow Jones Industrial Average was up 12% (the best month since 1987), and the Russell 2000 was up 18% for its best month on record. The MSCI All-Cap World index also posted its best month ever, up 12% in November. The announcements of 3 vaccines with 90%+ stated efficacy rates spurred an enormous global rotation into the most economically-sensitive areas of the market, as investors began to see a light at the end of the tunnel in our quest for a return to normalcy.
The enormous market strength over the past month bodes well for returns over the next 6-12 months in our view. We maintain a positive outlook for equities in the year ahead, due to our expectation for 3+ vaccines to fuel a reopening process as 2021 progresses along with still exceptionally low interest rates, as well as the potential for fiscal and monetary stimulus to boost the economy as needed. This view also hinges on the likelihood of a divided government which drastically reduces the chances of aggressive legislative changes that can alter the fundamental outlook over the longer term, including tax increases. In our base case 2021 scenario, we believe earnings can rebound to $175. And given the very low interest rate environment, we believe market multiples can remain relatively elevated particularly as investors discount the economic recovery. We apply a 23x P/E multiple (down from the current 26x P/E), which results in a base case potential S&P 500 target of 4,025 in 2021.
However, markets do not move in straight lines and it would be normal to see equities consolidate in the short term as they digest the past month’s strength. Concerns over the virus spread and a continued rise in hospitalizations are resulting in increased shutdowns. This is seen in US mobility and engagement readings that have rolled over, and will likely result in economic softness over the coming weeks and months particularly in the continued absence of additional fiscal aid. We also need to monitor the two Georgia Senate runoffs on January 5th, which if both Democratic candidates win could drastically alter the legislative agenda in 2021.
We recommend pro-cyclical exposure to equity allocations; but following the recent run-up in many of these areas, we would patiently accumulate with new money at current levels and use consolidations or pullbacks as a better buying opportunity. With so much focus on the “recovery” areas right now, we also remind you not to forget about the areas operating best fundamentally through the pandemic (i.e. large cap tech-oriented, health care, and select consumer subsectors). Many stocks in these favored areas have been consolidating prior strength for the past several months and appear to be near better entry points for the short term.
IMPORTANT INVESTOR DISCLOSURES
This material is being provided for informational purposes only. Expressions of opinion are provided as of the date above and subject to change. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct.
Links to third-party websites are being provided for informational purposes only. Raymond James is not affiliated with and does not endorse, authorize, or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any third-party website or the collection or use of information regarding any websites users and/or members.
This report is provided to clients of Raymond James only for your personal, noncommercial use. Except as expressly authorized by Raymond James, you may not copy, reproduce, transmit, sell, display, distribute, publish, broadcast, circulate, modify, disseminate, or commercially exploit the information contained in this report, in printed, electronic, or any other form, in any manner, without the prior express written consent of Raymond James. You also agree not to use the information provided in this report for any unlawful purpose. This report and its contents are the property of Raymond James and are protected by applicable copyright, trade secret, or other intellectual property laws (of the United States and other countries). United States law, 17 U.S.C. Sec. 501 et seq, provides for civil and criminal penalties for copyright infringement. No copyright claimed in incorporated U.S. government works.
The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market.
The Dow Jones Industrial Average (DJIA) is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange (NYSE) and the NASDAQ.
The NASDAQ Composite is a stock market index of the common stocks and similar securities listed on the NASDAQ stock market.
The MSCI World All Cap Index captures large, mid, small and micro-cap representation across 23 Developed Markets (DM) countries. With 11,732 constituents, the index is comprehensive, covering approximately 99% of the free float-adjusted market capitalization in each country.
MSCI EAFE (Europe, Australasia, and Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the United States & Canada. The EAFE consists of the country indices of 21 developed nations.
MSCI Emerging Markets Index is designed to measure equity market performance in 23 emerging market countries. The index’s three largest industries are materials, energy, and banks.
Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions.
For clients in the United Kingdom:
For clients of Raymond James Financial International Limited (RJFI): This document and any investment to which this document relates is intended for the sole use of the persons to whom it is addressed, being persons who are Eligible Counterparties or Professional Clients as described in the FCA rules or persons described in Articles 19(5) (Investment professionals) or 49(2) (high net worth companies, unincorporated associations, etc.) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended)or any other person to whom this promotion may lawfully be directed. It is not intended to be distributed or passed on, directly or indirectly, to any other class of persons and may not be relied upon by such persons and is, therefore, not intended for private individuals or those who would be classified as Retail Clients.
For clients of Raymond James Investment Services, Ltd.: This document is for the use of professional investment advisers and managers and is not intended for use by clients.
For clients in France:
This document and any investment to which this document relates is intended for the sole use of the persons to whom it is addressed, being persons who are Eligible Counterparties or Professional Clients as described in “Code Monetaire et Financier” and Reglement General de l’Autorite des marches Financiers. It is not intended to be distributed or passed on, directly or indirectly, to any other class of persons and may not be relied upon by such persons and is, therefore, not intended for private individuals or those who would be classified as Retail Clients.
For clients of Raymond James Euro Equities: Raymond James Euro Equities is authorised and regulated by the Autorite de Controle Prudentiel et de Resolution and the Autorite des Marches Financiers.
For institutional clients in the European Economic rea (EE ) outside of the United Kingdom:
This document (and any attachments or exhibits hereto) is intended only for EEA institutional clients or others to whom it may lawfully be submitted.
For Canadian clients:
This document is not prepared subject to Canadian disclosure requirements, unless a Canadian has contributed to the content of the document. In the case where there is Canadian contribution, the document meets all applicable IIROC disclosure requirements.
Broker Dealer Disclosures
Securities are: NOT Deposits • NOT Insured by FDIC or any other government agency • NOT GUARANTEED by the bank • Subject to risk and may lose value
Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. Raymond James Financial Services, Inc., member FINRA/SIPC. Raymond James® is a registered trademark of Raymond James Financial, Inc.
Markets & Investing December 09, 2022 Review the latest Weekly Headings by CIO Larry Adam. Key...