Friday Market Insights – Biden and the Democrats are constricted to the centre

Leslie Cliff: [00:00:04] Welcome to our Friday insights. I’ve got I’m Leslie Cliff, I’ve got with me Justin Hahn, our economist. And let’s just get right into it, because it was a very busy week, starting off with a holiday. So for busy day with Martin Luther King Day, the markets closed Monday. But Justin, what struck you? What all the things that went on this week?

Justin Hahn: [00:00:27] Yeah. So as you mentioned, it was quite a short week with Martin Luther King Day and the US markets closed. It also was short due to all the eyes being focused on the inauguration of Joe Biden. Markets this week were pretty strong on the back of Joe Biden’s inauguration, helping boost the stocks higher. In particular, we saw the growthier tech names outperform also on the back of partly due to Netflix’s earnings and strong start to the year and anticipation to some of the earnings ahead. In addition, we saw a preview of some of Joe Biden’s policies and plans, such as a one point nine trillion dollar stimulus, as well as the climate agreement returning back into the Paris climate accord, as well as potentially creating more stimulus to that sector.

Leslie Cliff: [00:01:14] Justin, I’m just going to stop you for a second there, Justin, because I just have ringing in my ears, all kinds of people telling me for the last couple of years that it would be a disaster if the Democrats get into the White House and further disaster if they control the Senate and the Congress. So we have the Congress, the Senate and the House, all Democratic and the market going up this week. So how can that be? What what?

Justin Hahn: [00:01:39] Part of the reason is because the markets don’t expect Joe Biden to be able to do anything that extreme that he wants. Some of the tax plans that he has in place probably won’t get passed due to the COVID situation. And there would be a lot of negative backlash if he were to pass an increase in taxes there. And markets generally view Biden as more neutral and good for global trade, which is also good for a lot of the multinational companies in the US. So although there are some negatives, there are a lot of positives that could come out from this and a lot of the negatives won’t be passed until later in the year. And the market hasn’t discounted in the short run yet.

Leslie Cliff: [00:02:18] It’s just so interesting, the markets so good at digesting information and being objective. It just shows all of us we have to be so careful of our news sources and and think for ourselves. But let’s get back to what happened this week. So we had the great movement in the tech sector. I’m interested in this rotation we’ve done and our portfolio is back to the barbell, having the covid winners like the tech stocks, but exposing ourselves more and more to the economically sensitive industrials, financials and so on. So the value stocks had a poor week this week. Tell me about the rotation in the market.

Justin Hahn: [00:02:55] Yeah. So the first few weeks of the year actually had a really strong performance for the value sector as well as financials and smallcap. We saw financials outperform significantly, but pulled back this week due to some of the earnings from, I believe it was, Bank of America and Wells Fargo missing revenues there. So it was expected a bit of a correction. They were a bit overbought. And on the flip side, we saw Netflix with the strong earnings to start off the tech earnings. So we saw the markets this week rotate slightly more towards the tech sides with value underperforming, as you mentioned, in anticipation of some of the earnings coming up next week from the big tech giants such as Google and Apple.

Leslie Cliff: [00:03:40] Ok, coming next week and we don’t know the new regime, what their view is going to be on deregulating the tech stocks. Is that something that accepted in the marketplace or?

Justin Hahn: [00:03:53] Yeah. So in terms of deregulation, there is still a little uncertainty on what Joe Biden is plans towards that sector is he has historically been a bit more negative on them as as well similar to Trump, but not as extreme, I would say. But there’s still a lot of uncertainty on what’s going to happen there. The tech stocks are a bit too big in our opinion, and control a bit too much. But it’ll be interesting what they can manage to do to break them up or add a little more competition in the markets.

Leslie Cliff: [00:04:24] Right. Do you think this will persist, do you think? Values back on the shelf, back in the back, back of the shelf for a while now or or is that just a weekly?

Justin Hahn: [00:04:34] We will view this more as a weekly bump going forward, there will be a global economic recovery and synchronization once the vaccines roll out and we’ll see these value stocks and more of the defensive sectors and economic sensitive sectors do better, such as materials and financials. So longer term wise, we think if the economic recovery continues to gain momentum, we’ll see value stocks continue to outperform as well as small caps.

Leslie Cliff: [00:05:03] So we’re not we’re not lightening up on the side of the barbell with the value stocks, right? So next week, next Thursday, we’re having our annual Look Back Look Forward seminar. And this year, it’s a webinar. We have over three hundred people signed up for it. I wondered if you could give us a little sneak preview of what it might come out next Thursday. Not too much. Just a teaser.

Justin Hahn: [00:05:27] Yeah. So next week we’ll be focusing on the broad theme of the shopping mall from all the central bank and government stimulus, coupled with the hopes of the vaccine and how that will tie in to more of a synchronized global economy going forward. We will also be giving some insights on how we’ll be picking up the pieces after this massive stimulus and what are the repercussions of this stimulus going forward.

Leslie Cliff: [00:05:52] So we’re busy preparing and looking forward to presenting that next Thursday. And I think that that really is a good wrap for the week. Just and we hope you can join us next Thursday and we hope you realize the days are getting longer and there is there is light coming more and more all the time. We really appreciate you spending the time with us. And we look forward to seeing you next week. Thank you very much.

Justin Hahn: [00:06:19] Thank you.