Avoiding the Eye of the Storm
As markets transition from a period of technology dominance and into areas that benefit from rebuilding the western world, we have rotated the portfolio into companies that make up the nuts and bolts of the western economy. Many of these companies’ stock prices have done nothing for the better part of a decade while slowly building up their earnings and cash flow base. If the technology sector has indeed peaked, we expect energy, industrials, financial and material stocks to be the prime recipient of these fund flows.
In the short term, markets took a punch to the gut over the past week as investors fret over the violent selloff in technology, the impact of the Colonial Pipeline hack, and of course, the threat of higher inflation. While geopolitical events can hurt markets over the very short term, their long-term impact on an investor’s growth trajectory is moot at best. As it relates to inflation, rising prices are the result of supply chain disruptions caused by the COVID shutdowns. These factors appear transitory in nature and should normalize as bottlenecks are resolves throughout the year.
Key Takeaways
- Stock remain the most attractive asset class on a relative valuation basis
- Energy stocks are trying to emerge from a ten-year hibernation
- The 80% rise in volatility over the past three days appears capitulatory in nature → short term bullish
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