2021 Outlook – Flashing Red Light!

Welcome to 2021! If you thought 2020 was extremely chaotic, you might not enjoy what this outlook newsletter holds for 2021. No matter your views toward society, politics or the markets, I think one thing everyone can agree on is that leadership deteriorated severely. From violence over the past six months to unconstitutional censorship debates, many investors wonder where the new year might lead for their accounts.

To be blunt, Scherschel Wealth does not foresee more upside to the markets for the next six months. Despite the negative impact of the pandemic last year, market indices still pulled off historically good gains ranging roughly from 8% to 40% depending on the index. Statistically speaking, it is a hard act to follow and perform in a similar manner the following year. Due to this and our view of current bubbles formed over the past two quarters in multiple areas of the market, Scherschel Wealth maintains a fully defensive posture for the coming six months.

Tech Sector Euphoria

Specifically, the tech sector reaped significant rewards due to the pandemic structurally altering society. The tech sector perfectly positioned to take advantage of such a global change. This reflected in their 2020 year end performance. Charts depict the three year NYFANG Index and the 20 years of the QQQ ETF, which is one of the more popularly traded tech-based ETFs.

It is Scherschel Wealth’s opinion that parabolic behavior in the tech sector charts constitute another tech bubble similar to the lead up to the 2000 dotcom bubble crash. In addition, behavior by what is increasingly being considered the tech monopolies does not bode well for the future. Their penchant for arbitrarily censoring views on their platforms is problematic. This could lead to the tech sector’s loss of immunity as Section 230 starts to be revisited.

Value Rotation

In short, we believe it would be prudent to avoid tech sector investment at this time due to socio-political risks based on their recent behavior. As alternatives to the risks posed by the tech sector, we are starting to weight more toward value and stable sectors for the coming year. Even more critical, we have reduced overall exposure to the market until the new administration’s policy effects start to show toward the end of the 2nd Quarter. The new round of stimulus appears to already be baked into the markets at these high index levels.

Warning signs are everywhere of more risk to come. Even though the vaccine will be rolled out to a greater extent in the coming months, which might help increase economic activity, that could easily and quickly be negated by new higher corporate taxes, business restrictions and a general lack of professional cooperation between governmental leaders. Altogether, it is clearly time to heed the flashing red light and take all precautions necessary to safeguard your portfolios.

If you seek financial advice or are uncertain about your investment portfolio, Scherschel Wealth would be pleased to offer you a complimentary analysis. Please contact Louis Scherschel to discuss further.