Big Picture

Our overall Primary Trend Indicator remains Neutral.  As we have indicated in the last few Market Insights, our data is pointing to overbought conditions in many areas of the stock market.  With the US political leadership changing on January 20th this will bring a change in various policy within capital gains tax, business law and privacy as well as changes to banking system laws which may cause investors to re-weight portfolios moving away from technology and growth stocks which have demonstrably outperformed over the past 4 years and into value and yield-sensitive stocks.  

As well, Federal Reserve policy will likely change as has been indicated recently that a slowdown of balance sheet expansion and accommodative policy once the Biden/Harris administration takes office.  It appears that monetary expansion and bond buying programs will slow and the bond market has already started pricing this event in as witnessed by Treasury Yields rising in recent days.

We caution investors who have portfolios with low cash levels and high equity weightings to begin shifting into higher cash levels and lower equity weightings, while at the same time, being open to specific stock ideas and sectors that continue to show opportunity.  Going forward stock picking will become more important as there are rising risks to the latest stock market rally.

Changing Fundamentals

Monday:

  • China - Producer Price Index - est. -0.8% decrease
  • China - Consumer Price Index(YoY) - 0.1% increase

Tuesday:

  • US - JOLTS Job Openings - est 6.7 Million

Wednesday:

  • US - Consumer Price Index(YoY) - est. 1.3% increase
  • US - Federal Reserve Beige Book

Thursday:

  • China - Imports
  • China - Exports
  • China - Trade Balance - est. $70Billion

Friday:

  • US - Producer Price Index(YoY) - est.0.8% increase
  • US - Retail Sales(MoM) - est. 0.2% increase
  • US - Industrial Production(MoM) - est. 0.4% increase

Focus List

Stock Market Stimmy

Stock Markets first full trading week of 2021 witnessed new all-time closing highs on the major US exchanges.   Small and mid capitalization stocks continue to outperform as investors speculate on growth versus value.  Investors expectations for continued coronavirus stimulus has injected high-octane fuel into asset prices.

Take for example the massive move higher in shares of Tesla Inc which added an astonishing $100 Billion in market capitalization in just the past 2 weeks.  As well, look at the run of money into the alternative energy, EV and crypto stocks.  Investor speculation is driving up valuations to unsustainable levels, at least in the short term.  Fundamentals must catch up to expectations and we believe fundamentals are lagging in most cases.  S&P 500 index investors should brace themselves for when Tesla stock price pulls back (eventually) it will drag down the entire index.  Could Tesla be the next barometer for a bear market in stocks?  Sebright Capital has been advocating for these sectors for many months but now we no longer see value here.

While we wait for that event to happen, Sebright Capital continues to mine data and present information to inform investors.  Our latest research shows a move away from precious metals and mining stocks and into treasury yields.  Gold suffered a large loss last week, down nearly $100 per ounce with Silver prices suffering a similar fate.  Copper and base metals prices could be next in line to move lower as the “risk free” rate (treasury yields) continue to rise making hard assets look less appealing.  With the new Biden/Harris administration’s willingness to allow interest rates to gradually move higher, our data shows increasing risks.  At this stage of the economic cycle, stocks look priced to perfection trading on Price-to-Sales versus a more trustworthy Price-to-Earnings metrics.