Virus, Vaccine, Volatility. Why 2021 will be the year of the V’s and how to play it, says this strategist

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Virus, Vaccine, Volatility. Why 2021 will be the year of the V’s and how to play it, says this strategist


It’s Christmas Eve, which marks the start of what has traditionally been the best seven-day sprint for stocks of the year — aka the Santa Claus Rally. So far, stock futures are indicating a promising start to that ritual, but as this market still belongs to 2020 for a few more days, anything could happen.

One event that may go down before Christmas is a post-Brexit trade deal. Investors are also watching that $900 billion stimulus bill that President Donald Trump has indicated some unhappiness over.

Onto our call of the day, which says get ready for 2021 and the “year of the V.” It comes from Vincent Deluard, global macro strategist at financial services group StoneX, whose collection of V’s includes a still-raging virus leading “to one last deflation scare in the first quarter.”

Deluard warns of a brutal first three months of the year in his December newsletter, predicting record COVID-19 infections and deaths and lockdowns on both sides of the Atlantic. He sees grim economic data for December and January triggering a selloff for the big cyclical assets of gold and copper and central banks jumping in to head off deflation.

But then comes relief in the second quarter, with vaccines unleashing pent up demand, leading to rapid reflation. That’s amid disrupted supply chains, demand returning to real goods, soaring consumption due to record net worth and low debt-servicing costs, and then massive cuts in big oil company spending budgets, squeezing the oil market, he said.

Deluard’s big advice? “Investors should start accumulating dirt cheap inflation-sensitive assets now. However, it may prudent to hedge cyclical risks with the ‘antigrowth trade’ in the first quarter: long gold, health care and the yen against a short position [bearish] in oil futures,” he said.

“In the second half, investors should focus on the best reflation and reopening trades: Latin American equities (unhedged) and the IBEX 35 Index, respectively,” said the strategist.

Here are more of his V’s for 2021 — valuations will matter, value stocks will finally shine, volatility becomes the new normal, with the VIX or Cboe Volatility Index
VIX,
-3.13%
,
which measures stock volatility, above 20 for much of the year. Below 20 often means markets aren’t stressed. He also warns of vulnerable and overvalued bonds and many stocks and a bursting of the IPO bubble.

With that dear investors, have yourself a merry and safe little Christmas.

The markets

On a half-day for markets, stock futures
YM00,
+0.18%

ES00,
+0.20%

NQ00,
+0.12%

are higher, with European markets
SXXP,
+0.20%

mixed. The pound
GBPUSD,
+0.68%

is up and the FTSE 100
UKX,
+0.07%

down on those Brexit deal hopes.

Read: Here’s what a Brexit deal means for markets

Asian stocks finished mostly higher, except in China as Alibaba
BABA,
+0.14%

slid as regulators launched an antimonopoly probe of the e-commerce group.

Read: Which markets are open and when over the holidays

The buzz

A post-Brexit trade deal between the U.K. and Europe may finally be here, in the wake of marathon talks.

There may be some good news on the COVID-19 front, as a pair of studies indicate having the infection could protect against reinfection. That’s as more than 1 million Americans have been vaccinated. Meanwhile, the U.K. is expanding its lockdown as a second, even more contagious strain, believed to have originated from South Africa, spreads.

Digital payments group Square
SQ,
-4.51%

has reportedly expressed interest in buying Tidal, Jay-Z’s music-streaming service.

Nuro has become California’s first company approved to operate a driverless delivery business.

President Donald Trump issued more pardons on Wednesday, bringing the total to nearly 50. Former campaign chairman Paul Manafort and Charles Kushner, the father of his son-in-law Jared are among the latest recipients.

The chart

Random reads

A digitally created Queen breaks into a TikTok dance to make a point about deepfakes

A ‘dragon’ and a cure for cancer. What a mystic who predicted the 9/11 attacks said about 2021

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