Date: December 4, 2020

Seasonal Soft Patch, Sector Rotation and the Greenback’s Plunge

As I started to mention the other day, during this time of year we have a very light, seasonal soft patch in stocks that usually begins with the rally moderating, then going sideways and finally pulling back mildly. With momentum so strong right now, we will see shortly if this comes to fruition. The rally has been moderating but that’s been it. Very quietly, we have seen the defensive sectors like REITs, staples and utilities really start to lag as long-term interest rates have risen. This is something keep an eye on for more than just a trade.

The stock market’s foundation remains super strong, however sentiment is greedy and euphoric. Usually, those late to the party get punished sooner than later, but sentiment is not the best timing tool. If you like what you own then sitting tight is usually a good strategy. If you are one who will regret sitting through a pullback with some positions, it’s time to rethink what you have.

One of the more interesting dynamics right now is the collapse in the US dollar which has been accompanied by a correction in gold. As you know, they usually move in opposite directions as gold is priced in dollars, but certainly not always. Never argue with what they market is telling you when it comes to what some textbook says. Gold and the dollar are now correlated while oil and other commodities are behaving how most people expect.

I did a video yesterday which can be found right HERE where I spoke about the election, stock market’s foundation, sentiment and my favorite seasonal time of year.


Paul Schatz, President, Heritage Capital