Just in order to emphasize the light news-flow due to Thanksgiving we would want to put the spot-light on everyone´s focus market Mongolia.
JPM says to stay OW the ‘defensive frontier,’ which is on an even stronger footing than it was prior to the pandemic. Mongolia stands to benefit from the bullish set-up for EM sovereign credit while being insulated from near-term concerns over a second COVID-19 wave in the Northern hemisphere
Want yield? Go to Mongolia.....(this will deserve at least a honorary mention the day the book about the crazy low-yielding years of ZIRP is written)
1. Tech price relative is close to highs seen in early 2000, but the sector is not stretched on P/E relative metric. In contrast to the dot.com bubble, the current rally has been supported by strong earnings delivery. Tech, Staples and Pharma were the only three sectors to record positive earnings growth in Q2 ’20, while overall US EPS growth was down 33% yoy.
2. In addition to resilient earnings growth, Tech has healthy balance sheets and strong cash flow generation, again in contrast to the 2000 episode. Consequently, buybacks remain a clear support for the sector.
3. Another contributing factor to the sector’s strong outperformance is that it fits well in the Quality Growth category. This is confirmed by its negative correlation to bond yields – see bottom chart, to activity indicators such as PMIs, and by its falling beta to the broader market.
4. Short term, Tech has been relatively less hurt by the current COVID-19 crisis, in particular when compared to consumer sectors. Parts of the Tech space have, in fact, taken greater market share during the current virus dislocation. Longer term, Tech remains the winner of the ongoing structural disruption, including the shift to AI and increased penetration of EVs.
5. Is Tech concentration and momentum risk too high? While we share some of the concerns with respect to the stellar run of some momentum stocks this year, we note that many of the strongest performers ytd are, in fact, not categorized within MSCI Tech index. Out of the Top 30 names contributing to MSCI US performance, only a third of these are components of MSCI Tech index. While US Tech price relative is close to highs seen in early 2000, it is not as stretched in terms of the share of total market cap.
6. How about the political risk for the sector? Our Tech sector analysts believe that a Biden victory might not be a negative for the sector. His policies do include the continued investigation of anti-competitive practices, but he has been less aggressive on this front compared to Elizabeth Warren, not arguing for a breakup of big Tech, and with the key targets likely to be Communication Services/Discretionary companies, rather than Tech names.
Below is GS model projection that has been pretty accurate since early November. This is temperature related only. You need to take into account the idiosyncratic upside risk from Thanks giving as well.
The most important investor on planet Earth in 2020 is the US retail investor - and they are allegedly having a lot of battle field success. The GS custom basket of favourite retail names is up 76% YTD . And as chart below shows seemingly contains a lot of alpha. Retail Army is beating the Institutional Force (long-only fundamentalists, hedgies and quant) by a mile.
"We're incrementally positive on AMZN going into what should be a blockbuster holiday season, given the company's outsized growth withinU S ecom, of which we estimate AMZN will claim ~42% of total GMV vs.~36% last year"
AMZN trades at ~3.4x EV/Rev and 21.7x EV/EBITDA on 2021 numbers
The increased buying for Q1 was a surprise. The world's oldest central bank is basically very pessimistic on short term inflation and the economy. Whatever happened to the bullish vaccine narrative everybody is so bullish on?
Sweden is a small country, but is important as a "global sentimentor" as it is an open export oriented country and very sensitive to the global economy (for more reading on the decision itself see Nordea's takehere).
SEK has been one of the best performing currencies lately, but given the bearish outlook by the Riskbank as well as the surge in Corona cases in Sweden, while main European cases are falling, makes you wonder if it is time for a reversal in the "mighty" SEK (chart 3)?
Moderna made the total of $60m in sales last year. Now the market estimates that MRNA will generate mRNA-1273-related revenue of $305mn in 4Q20 and $13.3bn in 2021. Impressive. Could this be the fastest sales ramp ever, no matter product?
Eurozone stocks with high UK exposure have been faring quite well in the last couple of months, but still massively lagging the strong rally in the domestic UK stocks we’ve seen recently. Will this gap close?
Gold momentum has been horrible for months. The latest sub 1860 puke was violent, but feels almost like the last weak hands shake out. Gold managed bouncing on the 200 day moving average and the longer term trend. Let's see how it trades in the coming days, but one thing is sure, people have been trimming gold longs for months (chart 2).
The stark difference between Wall Street and Maine Street could not be more clear than in the case of corona. Hospitalizations and deaths are sky-rocketing but financial markets clearly are saying: "It's hurting less this time" (for the economy that is).
Deutsche Bank: "Our mobility heatmap suggests that the impact of the second wave on economic activity may have peaked. Hence, the clear slowing in case growth in both the US and Europe is not coming at the expense of a creeping decline in economic activity. Activity in the US has remained at relatively high levels. And with case growth now showing signs of stabilization across the country, the downside risks may have diminished"
The great "Dividend Debate" continues - all eyes on December 10th. Will well capitalized banks be allowed to resume dividends in 2021? One could expect further clarity post the 10th December governing council meeting. Bank investors would clearly see a lifting of the blanket dividend ban as a positive for the sector. The EU Bank sector has had some significant change of "fundamental fortune" in the last few weeks - with relative earnings revisions looking better, valuations being cheap, scoring thematically both as "a dog" and "value" - and add to that the hope of dividend momentum going into next year. A lot of this is however clearly in the price.
Euro bans vs German 10 year, slight dislocation lately.
CITI joins the year-end melt-up train: "As we draw closer to the end of a tumultuous 2020, one of the unappreciated risks to asset markets in the coming months could be a melt-up in equities. Our metrics suggest light positioning, in conjunction with a potentially potent risk appetite mix including: a loose Fed, further fiscal stimulus in the US and reacceleration of the improvement of labour markets"
NASDAQ year-end melt-up in 1999 below as inspiration...
Yesterday we outlined our super spreader trade logic for next week,hereandhere.
Temperatures have dropped sharply and are projected to stay low for weeks to come.
Below chart (1) from GS reinforces the possible US lockdown scenario becoming an even stronger narrative, especially as Thanksgiving will most likely be a big super spreader event, to be added to the cold weather model projections.
As GS writes expect;
1, sharp pick up in cases from 170k daily to 350k daily cases by Dec 5
2, lockdown measures must be firmed up
3, markets are under appreciating harsh US lockdowns over coming few weeks
People have sold volatility and other related protection to lowest levels since Corona. Why not pick up some cheap(er) protection/volatility in case the cold weather and Thanksgiving bring back the US lock down narrative?
After all, VIX closed at lowest since the Corona crisis started (chart 2).