Reflation and RotationApril 20, 2021
In this Q1 2021 slide presentation of our quarterly strategy report, we discuss the following topics:
-The level of speculative activity in markets this year has been extreme in our view. More money has come into world stock markets in the last 5 months than in the last 12 years cumulatively.
-In the last 14 months the combined fiscal and monetary stimulus have been massive. Fiscal + Monetary + Vaccines (re-opening economies) are a hugely stimulative combination. The expression goes “Don’t fight the Fed.” But right now, it is really more like “Don’t fight the Fed, the Treasury, the CDC & science.”
-The potential that inflation reaches a level higher than expected and persists at that level for longer than is expected is our opinion.
-The outperformance of cyclicals and interest-sensitive stocks seems to validate the expectation that inflation will be higher for longer. The increase in fed funds future yields also suggests that the market expects inflation to force the Fed to begin raising rates sooner than they are currently articulating.
-There is true innovation, and there is innovation speak. Words like “disruption” are telltale signs of innovation speak. Investors should be wary of innovation speak as a justification for elevated valuations.
-There are many companies out there in the world pursuing innovation strategies across a variety of industries. We highlight 15 of them.
Download slides here: Reflation & Rotation
(A different version of this Q1 2021 Quarterly Strategy Report including investment product performance is available on the investment product websites.)