November 22, 2020

Last week saw global equity markets performing a balancing act between incoming positive vaccine news and ever-growing economic restrictions aimed at curbing the recent spike in virus cases and hospitalizations. The rotation out of the technology sector and into more cyclical stocks continued, as the vaccine developments improved investor sentiment and confidence about next year’s outlook. The U.S. jobs data release showed worse-than-expected initial jobless claims, which, in our view, confirms that this economic recovery is likely to be choppy before ultimately returning to pre-pandemic levels. Reports that the Treasury department is not extending certain funding for the Fed’s lending facilities established earlier in the pandemic is catching attention, though we don’t interpret this as a signal that monetary-policy support will be significantly or permanently scaled back. The mixed economic outlook and growing coronavirus concerns pushed sovereign yields lower and global stock markets in risk-off mode. For the week, the Dow and S&P 500 both retreated 0.8%, while our 50/50 Nasdaq/Russell benchmark advanced 1.2% (on the strength of the Russell 2000’s cyclical content). European bourses gained between 0.5% (for the German DAX) and 2.2% (for the CAC 40), while Asia Pacific stock markets diverged but followed last week’s bullish sentiment (Japanese stock markets gained 0.6%, while mainland Chinese markets gained 2%). Your BSD Global Tech Hedge Fund rose 0.4%. We have positioned the BSD Global Tech Hedge Fund with the expectation of more market volatility; the Fund is 85% invested across a couple dozen tech vendors and tech end-users, with a 75% short equity indice hedge that will incrementally grow if the market deteriorates. Our BSD Global Tech Hedge Fund will be protected from significant market drawdowns, but if global stock markets defy the ‘actual economy’ and climb higher, we will marginally participate in those gains. We’re still up over 24% year-to-date, versus +10% for the S&P 500 and +19% for the 50/50 Nasdaq/Russell benchmark.

The coming U.S. Thanksgiving holiday week could continue to be a period of consolidation for stock markets as both the growing virus outbreak and associated economic restrictions will counter potential news on fiscal stimulus packages and vaccine availability. With the Q3 earnings season behind us, traders will focus on macro economic data; important data in the week ahead includes durable goods, personal income and spending, and the Fed release of the FOMC minutes of its last meeting. With most of the ‘A-Team’ taking the week off (and even ‘B-Team’ players leaving early on Wednesday), trading volume will be lower. Normally this means low volume and little volatility. Perhaps not this time. The field is open for the growing algorithmic trading players, which reacts to key words in headlines. These headlines will be fueled by news about the global health crisis, and regional economies rolling over within the context of an equity market that is significantly overvalued.