Early indications are that 2021 is off to a strong start. Better than expected manufacturing data, a weak dollar, and rising commodity prices are providing bids this morning. Precious metals and oil are strong as the dollar struggles. While the Covid crisis shows few signs of slowing, optimism about vaccines helps keep investors positive.
So far, the market shows little concern about the Georgia special election that takes place tomorrow or the continued drama over the counting of electoral votes. The market celebrated gridlock after the election back in November, and it is logical to assume it would not be happy if that shifted, but Senator Joe Manchin of West Virginia may prevent the implementation of the measures that are of significant concern to Republicans. The market seems very sanguine about the political situation, which is probably due to the belief that it will not be easy to make any major policy changes with Congress so closely divided.
As we move into the new year, the bigger issue for the market is to what degree momentum will continue versus locking in some big gains after a considerable run. Market pundits are growing louder about the potential for a significant market top, but as usual, they are early and sitting on the sidelines. This helps create "Wall of Worry" action that keeps the market trending higher as those sitting in cash on the sidelines grow anxious about missing out.
Bitcoin (GBTC) was widely volatile over the weekend and pulled back more than 10% from the highs that it hit. The bitcoin action is a good proxy for the speculative appetite that exists and suggests that market players are likely to continue to pursue some of the hot themes like SPACs, electric vehicles, gambling, solar energy, etc.
The most positive thing about this market in recent months has been the robust stock picking and the outperformance by secondary stocks. That is the issue that we need to watch closely to navigate this market. The temptation to call a market top will be very great, but we have to stay focused on price action more than the news flow.
The first few days of the year typically enjoy some inflows from retirement plans, but positive seasonality starts to come to an end soon. We have the Georgia election to act as a catalyst, and there are plenty of hefty profits to protect. We will need to stay very vigilant and be ready to act quickly if conditions start to shift, but there are no signs yet of the disaster that the bears are so confident is about to hit.