After riding such a wild economy and market in 2020, it’ll be hard to top all of the ups/downs.
But it is going to be a challenge for some of the better names to continue moving upward. Stocks like Zoom (ZM) - Get Report, Peloton (PTON) - Get Report, Teladoc (TDOC) - Get Report and DocuSign (DOCU) - Get Report -- the work-from-home firms that took full advantage of the coronavirus shutdowns. And don't forget Disney (DIS) - Get Report, which timed its Disney+ launch just right.
Even as we seem to see some daylight with a vaccine and potentially opening up the economy, some changes already made are likely to be long-lasting or even permanent. Many of these uber growth companies rocketed higher in 2020 in the hope that future growth would be substantial and sustaining. It might well be, but stock prices are lofty and could come down sharply in 2021, even with some growth prospects still intact.
Housing was quietly a strong sector in 2020, but that could reverse in the back half of 2021 if the Fed comes off its zero-interest-rate policy. Why is this? Simply put, the Fed has placed policy in emergency mode, mostly due to heavy job losses and a weaker economy due to Covid-19. The Fed has talked about wanting to see higher inflation, which could be stoked by a stronger economy.
For 41 years, the Fed has been fighting inflation, and I doubt it will miss a run higher this time around, even with so much money floating. That said, if the economy strengthens and dollar velocity picks up, the Fed will have no choice but to have a pre-emptive strike and raise rates sooner rather than later. This was the playbook of Chair Ben Bernanke, after the Great Financial Crisis, and Chair Janet Yellen, who is still on the scene as the likely next Treasury Secretary.
The housing sector could feel the pain of higher interest rates, a sluggish recovery or residents abandoning their homes as they did during the Great Financial Crisis. As for stocks that might struggle in 2021, look at Lennar (LEN) - Get Report, Toll Brothers (TOL) - Get Report, KB Home (KBH) - Get Report and DR Horton (DHI) - Get Report. These were the winners in 2020 and may struggle with higher rates and larger home inventories.
Energy is going to struggle again in 2021. Supply issues and weak demand were the focal point for crude and other energy sources falling to all-time lows. This may continue in the new year as OPEC cannot come to an agreement to cut supply. If that fails to materialize, the suppliers will have no choice, but to continue pumping oil, even if adjustments for less demand are considered. Demand fell off a cliff with many people staying home for work in 2020. That trend may not change all that much and may be relatively permanent in some cases.
Looking at the names, a bearish play on stocks such as Chevron (CVX) - Get Report, Exxon Mobil (XOM) - Get Report, Occidental Petroleum (OXY) - Get Report, EOG Resources (EOG) - Get Report and Pioneer Power Solutions (PPSI) - Get Report might be the places to go.
Finally, precious metals are likely to feel some pressure if inflation does not materialize from the excess monetary stimulus. Many are seeing new all-time highs coming for gold and a surge up in silver toward the old highs around $50 an ounce. But if the economy is strong and inflation remains muted, or if the Fed pulls back on the monetary stimulus, then the metals will suffer the consequences. The U.S. dollar is just not weakening enough to create a frenzy in gold.
Bob Lang is co-portfolio manager of TheStreet's Trifecta Stocks, where he provides a weekly "5 Bearish Bets" feature to subscribers, and a regular contributor to Real Money, TheStreet’s premium site. Click here to learn more and get great columns, commentary and trade ideas from Jim Cramer, Helene Meisler, Mark Sebastian, Paul Price, Doug Kass, and others.