US Stocks: ‘Stay at Home’ Vs ‘Leave Your Home’ investment portfolio – Citibank report

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April 1, 2021 7:16 PM

Citibank in its 2021 annual outlook takes a look at the 'Stay at Home’ Vs ‘Leave Your Home’ investment portfolio.

US Stocks, investment, Stay at Home, stocks, S&P 500Citi analysts expect room for substantial performance rotation in 2021, even if it is only to partially reverse 2020’s impact.

After the outbreak of Covid-19 pandemic, the global stock market saw a big fall but then the rebound was equally fast. What led the reversal was probably the conviction that there will be certain sectors in the economy that will witness a gain while a few other industries that may be negatively impacted. After all, with restrictions in place and ‘work-from-home’ becoming a norm, some stocks are bound to record higher revenues and margins than other stocks.

What transpires for investors is to have the right set of stocks int heir portfolio for the long term. Citibank in its 2021 annual outlook takes a look at the ‘Stay at Home’ Vs ‘Leave Your Home’ investment portfolio. 2020 showed the dispersion clearly when stay-at-home stocks rallied while ‘Cyclical’ stocks remained subdued in their performance.

While COVID-19 could still continue to present challenges and socially close industries (e.g. tourism) could remain depressed at the start of 2021, Citi analysts have greater confidence of a broadening in economic activity that could brighten throughout the remainder of 2021. With multiple effective vaccines and large-scale production likely to be in place by mid-2021 in developed countries, a sharp economic expansion of the global economic recovery is expected in the second half of 2021. Following a forecasted 3.9 drop in 2020, global GDP is expected to expand 5.0 in 2021.

Themes in 2021

COVID-19’s arrival starkly divided the world’s asset prices, boosting roughly half (COVID-19 defensives) and sinking the remainder (COVID-19 cyclicals). With a large dispersion of returns, Citi analysts expect room for substantial performance rotation in 2021, even if it is only to partially reverse 2020’s impact.

Over the long-term, Citi analysts like unstoppable trends like Digital Disruption and New Energy. However, for 2021, COVID-19 cyclicals appear unusually attractive with a massive dispersion gap. As vaccines and treatments grow, a rotation to such cyclicals is highly likely to play out as the eventual departure of COVID-19 could mean more significant recoveries in the most impacted industries.

2021 expectations

With a large dispersion in returns, citi analysts expect room for performance rotation in 2021. In 2021 till date, the Dow 30 is up by nearly 8 per cent, S&P 500 is up by about 5.39 per cent while Nasdaq 100 is marginally up by 0.06 per cent. The graphic below shows that the divide between defensive and cyclical stocks was much clear in 2020 but the sector rotation is well under way in 2021.

Source: Citi Private Bank.

The“Stay at Home” basket includes names identified to benefit from COVID-related disruptions and a shift to working from home. “Leave Your Home” basket includes Citi Research Buy and Neutral Rated US names in the following sub-industries: Banks, Industrial Conglomerate, Machinery, Oil Gas & Consumable Fuel, Textiles Apparel & Luxury Goods, Energy Equipment & Services, Hotels Restaurants & Leisure, Building Products, Retail Real Estate Investment Trusts, Construction & Engineering, Leisure Products, Airlines, Multiline Retail.

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