Tracie McMillion, head of Global Asset Allocation Strategy, Wells Fargo Investment Institute:

We saw some softer labor data, but most of the economic data has continued to improve, especially in some of the areas that have already shown a lot of strength, areas like the housing market and the consumer goods market. Housing starts have risen to their highest levels since 2007, and homebuilder sentiment has followed that that trend. There‘s been an exodus from more urban areas to the suburbs and exurbs as people are looking for more space both inside their houses and outside of their houses. Industrial production indicates continued strong demand, especially for those that are tied in part to housing. Auto sales have again climbed higher and prices of raw materials that are related to housing remain elevated. The economic data, though, have taken a backseat this week to the COVID news and the news of the vaccine.

Vaccine manufacturers announced positive results for the COVID vaccine as phase three trials indicated a nearly 95% efficacy rate, and that was for two of the vaccines that are in the very late stages of testing. So we‘re now anticipating that these vaccines could get emergency approval within weeks and that broader distribution is likely toward the middle of 2021. So that means there‘s a light at the end of the tunnel and markets celebrated that news. But in the interim, we‘ve got to deal with the very real threat that the virus poses today. And rising caseload and soft lockdowns are spreading across many parts of the United States and that‘s starting to worry investors, especially if there‘s no immediate relief from another fiscal stimulus package. We suggest putting cash forward and rebalancing into any volatility as markets should move higher as we move closer to a full reopening. Some countries have been much more effective at controlling COVID than others. This is especially true of Asian countries like China and Korea and Taiwan, and their economic data and their markets are reflecting that success. We‘re growing more sanguine on emerging markets but still think that there‘s some caution that should be warranted there. On the other hand, Europe is in the midst of another severe wave of infections, and it‘s having to curtail some of its economic activity to slow the virus. And that‘s really been a headwind to its economic recovery and European markets have suffered as a result. For that reason, we continue to underweight developed market international stocks.

In the short term, yes, we‘ve seen some sector and some style rotation in the markets. Information technology has been the big winner this year as companies that have offered a seamless digital experience have succeeded in drawing new customers and growing their revenues at the expense of more traditional companies. Health care stocks might be seeing a bit of a sell on the news-type events as we‘ve seen excellent vaccine news that boosted the prices of certain pharmaceutical companies, so investors may be taking profit there. We continue to favor both the IT sector and the health care sector over the next 12 months, together with consumer discretionary and communication services sectors since we think that all four of those sectors should continue to win consumers‘ dollars.

Well, gold had a very good year and we continue to believe that it will rise over the next 12 months. But recently, the price of gold has receded a bit as some of its supports have weakened. First, gold performs really well in a low interest rate environment and rates have started to climb a little bit over the past few weeks. Second, gold often acts as a hedge to event risk, and the election and the recent vaccine news have reduced the risk of uncertainty lately. And then third, gold tends to perform somewhat better when the dollar is falling, and the dollar has stabilized recently. But we think it will resume its downward trend in the coming months, supporting somewhat higher gold prices than what we see today.