According to sources, one of the first priority of the Biden administration will be to smoothen out trade relations with Europe. Relations with China will also improve, although we will not return to a pre-Trump era soon. Reducing trade tensions is positive for the global economy.
While markets are at a premium, in no way are their valuations extreme. Yes, there are many individual names that are trading at extreme valuations, however, the market overall is not.
Furthermore, I have said on several occasions, a higher market PE might be the new norm from now on. And while this is currently only a theory that has yet to be confirmed, for the time being, it seems to be playing out.
How about Growth vs Value? While we do not distinguish between growth and value, the so-called growth stocks have been on a multi-year run vs their value counterparts. We have been seeing a rotation out of growth for a while now, especially in names we think have extreme valuations. The question is, can this continue? The answer is yes. And if history is a guide, this rotation could last for several years.
Which brings us to the Dollar. lower trade tensions, fiscal, and liquidity support is a default risk-on trade, and a proxy for a lower dollar. While have been bearish on the dollar for a while now, we continue to think the dollar could go lower over the next several months.
