This article first appeared in the Morning Brief. Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. Subscribe

Thursday, April 1, 2021

The first quarter of 2021 reminds us 2020 is over

An eventful first quarter has come to a close.

And while stories like GameStop (GME), Viacom (VIAC), and the rise of NFTs capture the market zeitgeist, when it comes to the broader themes running through the investing conversation at the quarter pole of the year, we see definitively that 2020 is over.

Or to say it more simply: everything that worked in 2020 isn't really working in 2021.

As Sam Ro highlighted earlier this week, last year's best performing S&P 500 members were laggards in the first quarter while the worst performing members were winners. Downward revisions in corporate earnings are also a troubling sign that blanket plays on "things getting better" will be challenged over the balance of this year.

Versions of betting on things people hate, of course, isn't entirely new in the COVID market. Back in February we wrote about how the worst stocks had become the best stocks. And as far back as June 2020 this theme was percolating as a popular one among the retail crowd.

Throughout 2020, we wrote time and again that the market was broadly rallying on the direction of change — namely that 2021 would be better than 2020 in a variety of ways. And as this forecast does indeed come to fruition, the questions the market asks today are what next and why?

A more widely distributed vaccine, fewer COVID cases, and a more normalized daily life in 2022 seems all but certain.

And as Morgan Stanley's Mike Wilson said in a recent note, "At this point, the bullish narrative of a recovering/reopening economy is very much the consensus view. That doesn't make it wrong, but markets are discounting machines and may already reflect the recovery from last year's sharp recession."

The stock market will in general be less worried about what you've done for me lately and more about what you will do for me next. And for the first time in a year, there isn't quite a clear answer on this front. Or at least a clear answer investors haven't already discounted.

Notably, investors are still placing big bets in areas that not only worked in 2020 but worked in the years leading up to the pandemic. My colleague Brian Sozzi shared a table out of Jefferies earlier this week showing the stocks most widely overweighted by hedge funds and long-only mutual funds. The names up top are not a surprise: Microsoft (MSFT), Amazon (AMZN), Facebook (FB), and Alphabet (GOOGL).