Next week we will have earnings report from the mega techs and of course the Presidential election is just around the corner. The reaction to the earnings report could be muted since the election outcome is so close by. The mega techs will continue to grow, but the intense scrutiny from Congress could create short term pressure.
Besides the political headwinds, the mega tech could suffer from the rotations from growth to value and large caps to small caps. The small cap Russell 2000 index has been outperforming the major three indices since the September 24 low. This rotation could spell the end of the FANG mega cap investing theme. The mega cap investing theme has been working since the financial crisis low in 2009 and it’s about time for new leaderships to emerge.
With the new leaderships in the new economic cycle, it doesn’t mean that the mega cap techs will crash, it simply means that its relative performance will suffer. It’s better to put money in the better performing sectors.
We favor the genomic (ETF ARKG) and solar residential sectors (ETF TAN). Inside these two sectors, we favor PACB and NVTA for genomics and ENPH and RUN for residential solar. Both sectors have formed a top and it could correct more during this uncertain time.
The solar sector has had an amazing run from September low to October, which was caused by the speculation that Biden could be winning the election. Biden announced a $2 Trillion Climate Plan in August, which excited the investors.
While who wins the election will inevitably impact the pace at which renewable energy grows in the near term, long-term investors shouldn’t think in terms of a few months or a year. The foundation has already been laid for renewable energy to continue its contribution to energy infrastructure. No matter who resides in the White House next year, investors will win in this election by betting on growth in solar energy. That’s why we recommend our subscribers to get ready to take advantage of the short term volatility to get long with the solar stocks.
The genomic stocks have been championed by ARK Funds, an active ETF manager. Since then, there have had quite a few genomic ETFs hitting the market, which means the genomic sector is taking footing in the investing community.
We believe these two sectors will emerge as leading sectors in addition to the old tech sectors.
The March 2020 low is the beginning of a brand new 4-year cycle which comes with a new economy (driven by coronavirus) and a new fiscal policy dominating monetary policy environment (also driven by coronavirus). Our lives have been changed significantly, and so have been the financial markets since the outbreak of the pandemic.
There will be corrections from time to time, some corrections could even be around 20%, but the trend will be up for at least two years from the March 2020 low. We just want to emphasize the general bullish trend so you will not be looking for short trades in a bull market.
Technically, it has been four weeks into the current weekly cycle with the small cap Russell 2000 index leading the big caps. We are expecting range bound trading next week so we not active in the market while waiting for the election outcome.
