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Is Georgia on your mind?

We have had several inquiries this morning asking us if we thought the market was primed for a pullback given the potential for a blue sweep.

Astoria Portfolio Advisors’ view is the following:

  • There is significant liquidity sloshing around the system (Fed implementing QE + fiscal stimulus). There are calls for even more stimulus to help further along the economy.

  • Corporate earnings have inflected meaningfully higher

  • Macro-economic data has notably improved

These factors are ultimately the tenets which drive Astoria’s portfolio construction design (and we think markets as well). Hence, we believe markets will continue to rally in the long run despite the effects of a blue sweep. Remember, bull markets last for years – not months.

We are in the middle of a powerful and new bull market. See our June 2020 & Sep 2020 interviews where we argued Value, Small-Caps, and Cyclicals provided the best return per unit of risk.

Is a pullback possible? Of course, anything is possible. The market has gone vertically up since April. The Russell 2000 index is up nearly 100% since its lows!

Ultimately, a vaccine + ample liquidity + improving corporate and macro-economic data will surpass a blue sweep in our view.

So, our probabilities are:

  1. 30-40% probability of a 10% pullback in Jan/Feb if there is a blue sweep along with the fact that the market is temporarily extended/overbought. We would use this as an opportunity to establish positions and to rebalance one’s portfolio.

  2. 75% probability we continue the cyclical uptrend which began in mid 2020.

More importantly, the larger trends which have persisted for the past several months are likely to continue in Astoria’s view:

  • Inflation likely moves higher

  • Rates continue to move higher (the US 10-year reached 1% today)

  • Yield curves continue to steepen

  • Cyclicals (Value/reopening stocks) likely outperform (in our view, banks, energy, industrials, materials are well positioned). As mentioned above, we argued this specific point back on June/Sep on CNBC TV.

  • Small/Mid-Caps continue to perform better than Large-Caps. Emerging Markets and Developed Markets likely to perform better than the US.

  • Commodities continue to stay bid. Anyone notice that XME (US metals/mining), COPX (copper miners), and PICK (global metals) are up 130-200% since April 2020?

Our view is that the overall US equity Large-Cap index will not move as much in 2021 as years past, so if you are looking to drive portfolio alpha, you will need to tilt the portfolio or look for more thematic situations. Contact us if you wish to see our thematic stock / ETF portfolios.

Remember, investors have crowed into Large-Cap index funds (as well as FANG stocks) for most of the past 2-3 years. There are ample opportunities outside the S&P 500 if you are concerned we are overbought.

Lastly, there has been a huge contingency of retail investors who entered the market in Q1 2020. No doubt they have had a positive impact on price action. We do not see them going away anytime soon.


Astoria Portfolio Advisors

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