Page 3 - ISQ January 2021

JANUARY 2021

“ With pullbacks still a natural occurrence for the equity
market, it is critical that investors have a strategy in place

for when the times get ‘rough’ so that emotionally-driven
decisions don’t lead portfolios into ‘hazards.’ ”

#3: Fixed Income – Keeping Portfolios En Garde the S&P 500 is likely to reach 4,025 by year end. We continue to favor
Despite Low Yields
the large-cap growth space at this stage of the recovery; however,
value and small-cap equities may ‘out-muscle’ the space later this
Fencing is a sport that requires agility, coordination, balance, and
timing – the same skill set global central banks displayed when year as the economy fully reopens.
adjusting interest rates in light of the COVID-19 pandemic. At the Info Tech – Hitting The Bullseye Of Our
beginning of 2020, the 10-year Treasury yield was ‘targeting’ the 2% #5: Sector Target
level, but the global health crisis led the Fed to ‘sabre’ yields to record
lows, resulting in the yield ‘striking’ a historic low of 0.50% last March. The sport of archery incorporates both accuracy and precision, the
This year, our envisioned acceleration in economic growth should same qualities we ‘aim’ to possess as we determine our preferred
‘thrust’ the yield back to the 1.50% level by year end; but low infla- sectors. The Information Technology sector has been the top
tion, central bank buying, strong foreign demand and the growing performing sector for three of the last four years, and we believe
economic sensitivity to higher yields will ‘parry’ yields from returning the rollout of 5G and the manner in which the pandemic altered
to levels near 2% on a sustainable basis. With the Fed pledging to the way companies conduct business will be additional ‘arrows’ in
keep interest rates low until at least 2023, the yield curve will likely the sector’s ‘quiver.’ The COVID-19 outbreak forced businesses to
steepen, and therefore we encourage investors to limit longer duration establish an online presence and to reconfigure operations in an
bonds. The opportunities for yield will remain restricted, and rather effort to meet safety guidelines. It also revealed several efficiencies
than ‘lunging’ at lower-quality bonds in pursuit of yield, investors in the way we live our everyday lives (e.g., e-commerce, streaming,
should allow bonds to serve their more traditional role in portfolios. telehealth), and has permeated industries not typically associated
In the year ahead, we expect bonds to offset the potential for equity with tech due to ongoing innovations related to artificial intelligence
volatility rather than produce the robust capital appreciation returns (e.g., the use of drones in agriculture). Elevated tech investment
we have grown accustomed to over the last several years. has placed the sector at the center of our allocation ‘target,’ but
given the tech-based adaptations in other industries, we believe
#4: Equity Market – Earnings Will Do The investors can still ‘score points’ with the Health Care, Consumer
Heavy Lifting
Discretionary, Communication Services, and Industrials sectors.
In 2020, for the second consecutive year, equity market returns were ESG – Wave Of Socially Responsible
‘lifted’ by P/E expansion, as optimism surrounding the eventual #6: Investment Not About To Break
economic recovery drove the equity market to record highs in the
midst of the outbreak. We remain positive on equities over the next The sport of surfing began prior to 1770, but it will make its debut
12 months, but it will be a ‘powerful’ earnings rebound (20% plus in the upcoming games this year! Similarly, the principals of envi-
EPS growth in 2021) that will ‘raise the bar’. Earnings are often revised ronmental, social, and corporate governance investing have been
higher in the period following a recession, so when combined with practiced for decades, but between the Biden administration and
tailwinds such as multiple vaccines and additional fiscal stimulus, the lingering impacts of the COVID-19 pandemic, the ESG ‘wave’ is

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