Expect markets to wobble in January as reality bites

Mathan Somasundaram

Deep Data Analytics

Local market had a low turnover negative day in holiday period with good smack down into the close. Period end window dressing was bashed down by global portfolios selling into the close. Expect month/quarter/year end macro asset allocation trades to start taking over global markets next week as US tax time frame clicks over. US markets have a senate runoff election early next week that will have big implications going forwards. If Democrats win both seats, they will control all three layers of government and will drive a lot of changes. If they don’t, Republicans will try to block just about everything and that means new stimulus plans will be hard to pass. Valuations are high, central banks are losing control, debt pile is historical and new pandemic waves are breaking hospitalization capacity. We may be looking at another volatile start to the new year! Fund managers are likely to get defensive through the start of the new year while the macro sorts itself out. NSW cluster has been badly managed due to vested interest groups and the strategy has come down to hope it doesn’t go bad while few other states are also seeing new cases. Globally pandemic waves are driving lockdown fears. Stimulus outlook is weakening and financial stress in the markets are rising. We are likely to see elevated market risk in January.

As we finish 2020, it is important to realize your timeframe for investment returns. Most planned retirements barely last 10-15 years but in reality it needs to last 20-25 years. Given the central bank theft from savers and retirees to bailout zombie businesses, the risk managed returns are even harder to get in the long term. You need to have a strong risk management and flexible investment strategy to survive the reality of the retirement time frame. There is no point wondering after the event. If you leant anything in 2020, volatility and risk are going to be part of your investment outlook and you need to plan to live with it. Longer term performances are mainly driven by risk management, asset allocation and managing changing macro cycles.

Overnight US market squeezed out a slight positive day as it closes near the low of the day despite period end window dressing. Bonds held flat mainly while USD was hit...now new 30 month low. Gold is moving higher on risk off. Oil ticked higher on inventories lower in the US but lockdown will hurt demand for the next few months. Copper was weaker as growth doubts rise. Russell has a big bounce after small cap stocks were bashed the day before. Gold lead the outperforming sectors while growth sectors like tech and health care were negative. Last day for 2020 and pandemic is still going strong. AUDUSD hits near 77 as China cuts steel production. Don’t be surprised that 2021 may start even more volatile than 2020.

Remain nimble, contrarian and cautiously pragmatic with elevated global macro risks!!! Buckle up...it’s going to get bumpy!!!

Have a happy and safe New Year!!!

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Mathan Somasundaram
Founder & CEO
Deep Data Analytics

Over 25 years’ experience in the finance/tech industry. Mathan has worked extensively in all parts of the finance sector (i.e. County NatWest, Citi, LIM, Southern Cross, Bell Potter, Baillieu Holst and Blue Ocean Equities). Currently Founder and...

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