Perspectives | November 2020 - Market instability

Summary of the month

• We maintain our focus on a recovery in the form of a "K". In which the IT (Information Technology) sector is highly benefited and on the other hand we see historical contractions in other sectors.
• Despite the instability caused by the election season in the US and the second wave of COVID-19 in Europe, markets continue to rise, driven by an expansion in valuations and hope for a vaccine going forward.
• In the short term, we could see a bullish rally in equities. However, in the long term, the future remains uncertain, we are constructive on Gold and Silver and see the Fixed Income sector as negative.

Macro corner

Markets and economy

More than eleven months after the first case of COVID-19 was diagnosed, the world is still trying to adapt to the pandemic and emerge from instability. In some cases, such as in the Technology sector, we have seen that the pandemic has been able to accelerate trends. 

For example, telecommuting grew exponentially, bringing revenues from the future into the present. Diametrically opposed are industries such as hotels and aviation, which have been forced to radically change the way they operate and their ability to recover to pre-COVID levels is still in doubt. 

Coupled with a buoyant market, driven by Big Tech, today's world is in a "K" recovery. The indices, under these impulses continue to push toward record prices, which does not eliminate the fundamental problems that are floating just below the surface. 

Under this regime, where economic risk remains high, the investor must consider how to hedge against a weakened macro structure and the pressure generated against the USD and other currencies. In our opinion, Gold and Silver present an interesting hedge with low opportunity cost given zero or negative interest rates.