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Showdown 2021: How to play both sides of the tug of war between stay-at-home and reopening stocks

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“We’ve seen in this market, with zero interest rates and really nothing else to buy, that some stocks just keep going up,” Schwartz said. “If you’re going to own these companies, don’t just buy them because of a theme, really understand it.”

There are some sectors that investors may have neglected in the coronavirus-related rally thus far that may have room to run.

Banks have grappled with low interest rates, higher credit costs and restrictions on dividends and stock buybacks during the pandemic, but now that loan-loss reserves have been built up and regulators are breathing easier, a 2021 renaissance isn’t out of the question.

A recent report from analysts at CIBC Capital Markets predicted financial stocks are likely to outperform in 2021, based in part on the anticipated arrival of a vaccine and a “large-scale reopening of economies” by the middle of the year.

“As such, we would expect an outflow away from the ‘stay-at-home’ trade … and into the ‘old economy’ names that have thus been avoided,” the analysts wrote.

Strategists at U.S. investment bank Morgan Stanley saw things similarly in their 2021 investment outlook, favouring stocks that have traditionally done better early after a recession, such as smaller firms.

“The early-cycle playbook also favours high-quality cyclicals, such as U.S. and European financials, materials, and segments hard hit by COVID-19 lockdowns, such as travel and leisure,” a recent research piece from the bank stated.

But those predictions and any attempt to say for certain whether the stay-at-homes or the reopening stocks will prevail in 2021 need to be taken with a grain of salt. That’s because, for now at least, COVID-19 is still calling the shots.

Financial Post

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