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Humanoid robot “Prepper”in Germany in April, 2020.
Agence France-Presse/Getty Image
The recent pullback for stocks, or as Goldman Sachs refers to it, that “warp speed correction on the road to 3,600,” (their S&P 500 target), looks to be on pause for Monday, as deal news and vaccine optimism fires up markets.
While we are nowhere near out of the woods with COVID-19, there is growing chatter on Wall Street about life after the virus and how to invest. Christopher Smart, chief global strategist and head of the Barings Investment Institute, tells his clients they need to answer three questions before proceeding:
“Is COVID-19 over? (Yes). Will next year be ‘normal’ (Yes), and What’s the best way to play the next cycle?” Navigate secular trends that the pandemic has speeded up — technology that will reshape business, rising concern for climate change, and new patterns of living, says Smart.
Echoing those sentiments, our call of the day from AB Bernstein lays out where investors should position themselves over the next three to five years.
“We think that long-run equity sector positioning has to be assessed across several dimensions, some of which are linked to the macro policy outlook and some to how demands of investors will change post COVID,” says a team of strategists led by Inigo Fraser Jenkins.
Bernstein says sector performance will be shaped by the following: real rates staying low or negative for a long time; strategic policy shifts on tax, buybacks and labor bargaining power; valuation spreads that are extreme levels and changing demands of investors as they face post-pandemic challenges; and growing interest in ESG investing (Environmental, Social and Governance).
As for where to invest, here are the team’s top ideas:
- Overweight on technology, health care and growth consumer cyclicals, such as e-commerce, digital advertising and cloud-based companies
- Overweight on consumer staples as they offer a sustainable income stream. They suggest U.S. food producers like McCormick MKC, +1.17% and Mondelez MDLZ, +0.79%, but avoid those in the processed food department like Kellogg K, +0.48% and Campbell Soup CPB, +1.16%.
- Selective overweight on consumer and industrial cyclicals — look for companies that are undervalued and can avoid bankruptcy. Those could be airlines, hotels or automation names.
- Energy and mining — selective overweights on stocks for investors who think inflationary effects of policy response to COVID will bring inflation sooner rather than later.
- Banks — stay underweight as a flat yield curve will keep outperformance flat and a bankruptcy cycle still needs to play out.
- Real estate — stay underweight as some parts of the sector face big headwinds and real-estate investment trusts also see a correlation with equities that rises with inflation. Exposure to central city offices and retail malls unattractive post-COVID.
The markets
Wall Street stocks COMP, +2.21% SPX, +1.61% DJIA, +1.21% are higher NQ00, +2.42% European equities SXXP, +0.10% are mixed, while Asian stocks finished in the green.
The buzz
Amazon.com AMZN, +1.75% plans to hire 100,000 U.S. and Canadian workers, with starting wages at $15 an hour and $1,000 sign-on bonuses in some cities.
Microsoft MSFT, +2.20% said on Sunday that its bid for TikTok had been turned down, with no explanation why. And after reports that Oracle ORCL, +5.75% would become a “trusted tech partner” for TikTok parent ByteDance, a Chinese state-affiliated news source said that sale won’t be happening. Microsoft shares are down 0.5% and Oracle shares are up 8%.
Nvidia NVDA, +6.51% shares are climbing after Japan technology conglomerate SoftBank 9984, +8.95% announced a $40 billion cash-and-stock deal to sell microprocessor designer Arm Holdings to the chip maker.
Nikola issued a detailed rebuttal over what it terms was a “false and misleading” report that called the electric-truck maker as a “fraud.” Shares are down another 3% after plunging last week.
Albert Bourla, the chief executive of Pfizer PFE, +2.14%, said on Sunday that the drugmaker should know if its COVID-19 vaccine candidate will work by the end of October — and if approved, it could be distributed in the U.S. by the end of the year. Pfizer is joining with German drugmaker BioNTech BNTX, +5.84% on that drug.
The University of Oxford said on Saturday it would resume a trial for the coronavirus vaccine candidate it is developing with AstraZeneca AZN, +0.68% AZN, -0.38%. That comes days after the study was halted following a U.K. patient falling ill.
Japan government’s longtime top spokesman Yoshihide Suga was tapped for the prime minister post.
The chart
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