Consumers are sitting on piles of cash that they are eager to spend. Is this an opportunity for your portfolio?

Markets have been driven primarily by momentum over the past quarter, in particular the energy sector. We don’t see this continuing. Fundamentally, supply and demand hasn’t changed. Recall, it was only a year ago one had to pay to have oil delivered. In the short term we actually see oil prices heading lower, because of the supply, which will hit U.S. companies more in our view, so we actually favour Canadian energy names at this time.
 
Another major theme for the momentum trade is the ‘pent-up demand.’ In the U.S. the personal savings rate is sitting at an unprecedented 20.5%, so we believe that reversion to the mean suggests this savings rate will come down as consumers feel more comfortable getting out and going to the malls, restaurants, and travelling more. There is a lot of pent-up demand, so we will slowly start to see better visitation rates, more travel, more reservations, etc. Stocks that represent these sectors are still down and out and under-appreciated.
 
All this to say it will likely be a slow grind until the end of the year, and not without volatility. We anticipate market performance to be stronger in the second half, with corporations posting better than expected growth. Meanwhile, investors will continue to doubt this bull market, much like it was from 2009 to 2019. The $1.9 trillion American Rescue Plan Act will be a significant boost for consumers and businesses in 2021, and talks of an infrastructure package to the tune of $3-$4 trillion, if passed, will make a massive dent in the unemployment rate. In general we believe stocks will be higher at the end of the year, as they will 3 years from now, and even higher in 5 years. Our 2021 forecast for the S&P 500 is 4,200 and the S&P/TSX is 19,500.

If you would like to discuss our market outlook, please reach out to us at mmbwealth@nbpcd.com