![]() ![]() One investment strategy is to use as many tailwinds to your advantage as possible. Let's get back to that question of whether now is a good time to invest. But from where I sit now, with the information I have, my call is for a positive 2021. And as we’ve all acutely experienced in 2020, the unforeseen can and does often happen. I still think the market will create some seasickness among all but the most experienced of sailors. Of course, that does mean smooth sailing. And with near 0% rates and a firehose of money that more than makes up for GDP loss, it’s my opinion that the S&P 500 could see double-digit returns in 2021. When you factor in the shift that has happened in the factors that matter, you can then make an educated guess on where the market may go over the next 12 months or so. There are now record low interest rates, low consumer debt, high government debt due to stimulus measures, consumer spending that has shifted to different locations, negative but rapidly improving GDP, and a bifurcation of earnings (some sectors are booming while others are languishing). ![]() If interest rates, liquidity, debt, consumer spending, GDP and earnings were all at a stable growth rate for the past 20 years, only then could we say that an index was undervalued or overvalued based on that measure.īut those things haven’t stayed the same. It assumes that everything else stays the same. And why would someone invest in something trading for more than it’s worth? If the S&P 500 is trading for 1.5 standard deviations above its 20-year average, common sense would say it’s overvalued. Like a rubber band, you can stretch one or two standard deviations from the average, but sooner or later, we’ll snap back to average. I used to be firmly in the fundamental valuation camp. I’ve said this in the past, but it’s worth repeating. Many things matter, but two things top them all: interest rates and liquidity. ![]()
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