Stableford Capital Insights

Stableford Market Commentary: December 2020

Stableford Capital—December Review: The Dichotomy Between Markets and the Economy

Happy New Year!With all the angst 2020 brought, it is hard to believe equity markets did so well. But markets are forward-looking and hope springs eternal! An eternally dovish Fed (“we’re not even thinking about, thinking about raising rates”) and stimulus as far as the eye can see will inflate assets, no doubt about it. Let’s just hope all this easy money actually filters into the real economy and sustains growth before the tax bill comes due and no one wants to own U.S. Treasuries for fear of credit risk. The good news is we can compare ourselves to Europe, where rates are negative and over-regulation has made economies sclerotic for years.With the S&P 500 up 3.7% in December, the market ended the fourth quarter up 12% (Figure 1). The Pfizer vaccine efficacy announcement on November 9th drove the move higher and started an epic rotation into Cyclical and Value stocks. Cyclicals outperformed Defensives by 6% from the announcement to year-end. FAAMG underperformed in the quarter, lagging the S&P 500 by 2%.[caption id="attachment_3360" align="aligncenter" width="940"]

Stableford Market Commentary December 2020 Figure 1

Stableford Market Commentary December 2020 Figure 1—December +3.7% SPX; 4Q20 +12% SPX[/caption]The FAAMG underperformance makes sense, with prospects for non-tech, non-work from home beneficiaries brightening. The rotation was also evident among the SPX sectors with Energy up 28%, Financials +23%, Industrials +16% the top performers.At Stableford, our approach for the fourth quarter was similar to 2020 overall: Our positioning targeted less volatility and risk than the overall market and was successful. We participated in the upside with bets on small caps, cyclicals, and value. But we also maintained our aversion to downside risk as multiple events (election, senate runoff, continuing pandemic escalation) warranted caution. We continue to believe the U.S. will recover from the pandemic—just not in a straight line.Fixed IncomeYields on the U.S. Treasury 10 Yr increased 7 basis points to 0.92% during December (Figure 2), continuing a trend higher from the July lows. The trend is clearly up now. The hope is that rates don’t move up too fast and begin to negatively affect equity valuations. Historically, equities can continue to perform as rates move higher if rates move in a smooth fashion without material acceleration. This is the base case, though unchecked government profligacy will eventually prove problematic.[caption id="attachment_3361" align="aligncenter" width="940"]

Stableford Market Commentary December 2020 Figure 2

Stableford Market Commentary December 2020 Figure 2—Rates Continue Up in December[/caption]All of us at Stableford wish you an abundance of health and prosperity in 2021! Please let us know how we can be of assistance.Stay Positive—Test NegativeAre you interested in making portfolio changes or getting a more in-depth analysis? Contact Stableford today by calling 480.493.2300 or simply request a copy of our Market Blast.SUBSCRIBE TO OUR COMPLIMENTARY STABLEFORD MARKET BLASTThis market commentary was written and produced by Stableford Capital, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested in directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.S&P 500 INDEX: The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure the performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

Justin Thomas
Justin C. Thomas has worked for over 15 years as a portfolio manager and analyst managing institutional assets for hedge funds and large financial institutions. Career highlights include 8 years as an equity analyst and portfolio manager at PartnerRe Asset Management, a global reinsurance company with $17 billion in assets under management, and prior to that managing a long-short equity portfolio for Citigroup’s proprietary account. Justin has also worked as an analyst at long-short hedge funds and in research for Montgomery Securities (Bank of America Securities). In addition, Justin Thomas gained operational experience while working in finance and operations at E-Stamp, a start-up in Silicon Valley. He began his career working as a CPA at KPMG. Justin has an MBA and Masters in Accounting from Northeastern University and an undergraduate degree in Economics from Tufts University.