The stock market’s incredible gains in November are encouraging some investors to put more cash to work.
But Credit Suisse’s Jonathan Golub said this week that investors may want to lock in gains for the year now, arguing that after all-time highs, the market could run into trouble in December.
“If you’re somebody who just came into a boatload of money… perhaps [wait] until after inauguration,” Golub, the firm’s chief U.S. equity strategist, said.
Golub’s biggest concerns for the market are the impact of rising cases of the coronavirus in the U.S. and resulting lockdowns across the nation in an effort to stem the spread of the deadly virus.
“They’re a reasonably decent headwind for things like Christmas sales, which are really important,” Golub said. “Also, we’re starting to see on the back of this a bit of a pickup in unemployment claims.”
BNY Mellon Investment Management’s Liz Young is also forecasting for a rocky December, but adds that any pullback is a buying opportunity.
“We have pulled a lot forward and there’s a little bit of a risk through the end of the year that we have some of that steam kind of come off,” Young said. “It could come off in some of the economic data, it could come off in the market, but I think that this is something that investors can and should look through. If we have a little bit of a wobble, we’ll call it 3% to 7%—anything that could happen before the end of the year—I would see that as a buying opportunity and you really have to look out three to six months and think to yourself, ‘Are things going to be better than they are today?’ And I think the answer to that is ‘yes.’”
Once we reach January, Golub believes the market will set the stage for a strong run higher as COVID-19 vaccines become available and as the Street gets more clarity on policy with the inauguration of President-elect Joe Biden.
“The end of ’21, what are we seeing?” Golub asked. “The virus is gone. Enough people in the U.S. and elsewhere will have been vaccinated. We’re not going to be walking around with masks the same way.”
Golub sees the S&P 500 at 4,050 by the end of 2021, indicating more than 10% upside from the current price. His price target is below Goldman Sachs’ (NYSE: GS) at 4,300, representing 17% upside from here, and JPMorgan Chase’s (NYSE: JPM) price target for the index at 4,500 by year-end 2021.
“Expectations of many key risks subsiding (e.g. U.S. elections, pandemic and vaccine news, etc.) clearing the path to a more positive forward outlook,” said Dubravko Lakos, JPMorgan’s chief U.S. equity strategist.
As for what Golub sees performing well in 2021, the Credit Suisse strategist believes the tech-heavy Nasdaq will continue to outperform, but that the rotation into value stocks isn’t sustainable given that the market has already seen the bounce off the bottom.
“I’m not feeling the love for this value trade that many are,” Golub said. “We’ll be back to seeing growth stocks leading again. Interest rates will be a little higher, which will mean of the cyclical parts of the market financials should do better than industrials and materials and energy.”