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Our views 18 November 2020

Are stocks vulnerable to correction with virus cases surging?

2 min read

Stock markets have rallied to new highs over the last couple of weeks on the back of an ultimately convincing victory for Joe Biden in the US presidential election and some very promising vaccine news.

However, our proprietary investor sentiment indicator has surged into euphoric territory with private investors extremely bullish and US directors selling shares in the companies they work for, at an aggressive rate.

We are positive on stocks given the prospect of reduced social distancing measures in 2021 but high investor expectations mean markets could be vulnerable to a correction if the surge in US virus cases leads to a more widespread lockdown or stimulus hopes disappoint.

For the time being we remain only modestly overweight, preferring instead to hold our highest conviction position in high yield bonds where spreads remain reasonably wide and central banks are likely to support the market, should more turbulent conditions return.

Investor sentiment is euphoric with stocks back at all time highs

Source: RLAM as at 18 November 2020. For illustrative purposes only. Proprietary sentiment indicator based on market returns, volatility, private investor surveys and US company director buying and selling of stock  in their own companies.

Past performance is not a guide to future performance. The value of investments and any income from them may go down as well as up and is not guaranteed. Investors may not get back the amount invested. The views expressed are the author’s own and do not constitute investment advice. Portfolio holdings are subject to change, for information only and are not investment recommendations.