A recent piece of analysis of U.S. markets that we read alluded to Waiting For Godot, the mid-century play by Irish writer Samuel Beckett in which the two hapless lead characters are waiting for someone (Godot) who never arrives.
After a remarkable period of low volatility and rapid appreciation, sparked both by 2019’s bottoming and turnaround of the global economy and supportive action by central banks, especially the Fed, waiting for a correction feels like “waiting for Godot,” who it seems is never going to come.
Certainly, the market feels “toppy” after its big run. We remain fundamentally bullish, for all the reasons we’ve mentioned in this report time and time again. The global economy is doing fine, and is getting stronger. Public psychology has acclimated to trade troubles, and is ready to greet progress with enthusiasm. Central banks are supportive, and communicating their intention to remain so. Even so, Godot is likely to show up eventually.
A correction could come in one of two forms — either a boring, sideways grind lasting several months, or a sharp decline of 4–8%, coincident with some appropriate externality, followed by a renewed uptrend. The recent outbreak of a SARS-like coronavirus in China reminded us of the correction that accompanied the last big Ebola scare back in 2014. That, or a piece of bad news from the Middle East, would be a very serviceable excuse that markets could use for a decline.
Since it is clear to us that we are likely near a top but not at the top, we would regard such a correction as a buying opportunity, and, for the more tactically oriented, we might wait to put more money to work until the current overbought condition has been somewhat relieved.
Our favorite themes remain the U.S., a few tactical opportunities in other developed markets, particularly the U.K., and within those, technology-related growth stories in the cloud, big data, software, cybersecurity, some defense electronics, medical technology, and biopharma.
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Thanks for listening.
