If you’re waiting for an entry point, just pull the trigger, already. This market has more upside. The Fed’s got your back, at least for the rest of this year.
Equity markets started the week in risk-off mood, but Wednesday had the S&P 500 up 1.74% and the MSCI Emerging Markets Index up 1.10%. MSCI China was right in linen, maybe up one bip more. Delayed fiscal stimulus and an ongoing public health crisis is not scaring Wall Street. When Mr. Market hides in the closet, he doesn’t last in there for long.
“Continued extraordinary global monetary support will enable markets to move higher over the medium term,” says UBS CIO Mark Haefele.
With that in mind, global-minded investors and the Barstool crowd should take three actions:
Investors large and small are going to have to take advantage of volatility, and buy on the down days. Put cash to work “right away” is nearly always the best strategy.
“Given the uncertainty of the outlook, some investors may prefer to build up longer positions using near-term volatility,” says Haefele, recommending investors buy the dips.
The Russell 2000 Index, which focuses mainly on mid-cap stocks, is underperforming the MSCI EM, mainly because that American index is loaded with companies facing economic restrictions, while the MSCI EM is loaded with China and large cap stocks that have been a favorite of investors since the pandemic was declared in March.
UBS’ Haefele thinks the next leg of the rally will reflect a return to “more normal” economic conditions, and that should benefit value and cyclical stocks rather than the mega-caps and the technology stocks in the popular ARK Innovation (ARKK)
Emerging market value stocks, as well as companies exposed to 5G and artificial intelligence are UBS favorites, based on a report dated September 29.
Investors might also want to check out solar stucks, though UBS did not mention this. This is a “heard on the Street” tip and while some of the solar ETFs have been out of control in the last few weeks, local names like First Solar and some of the big China producers will benefit post-election.
If Joe Biden wins, his Green New Deal plan will promote solar. If that means more solar imports from China, companies like Jinko Solar will do well. The stock rose 17% today. The China home traders drove this stuck up over 140% year-to-date.
Governments around the world are expected to use fiscal stimulus to help their economies recover from the pandemic.
Meanwhile, if the market looks too pricey, it’s time to protect against the downside, says Haefele.
“Given the low (interest) rate environment, the opportunity cost of holding gold is very low,” Haefele says.
Markets were still positive after the closing bell on Wednesday.