Stanley Druckenmiller: watch out for the Covid stock rotation

A lot of money has “rotated” into stocks that benefit from working at home. As we return to normal, it will flow back out, says Stanley Druckenmiller, chief executive of the Duquesne Family Office.

The prospect of one or more vaccines for Covid-19 has sent markets soaring. But certain stocks are set to do a lot better than others, as billionaire investor Stanley Druckenmiller points out. 

“You’ve had a bunch of equities benefiting greatly from work from home. A lot of money has rotated into them. They are overvalued,” the hedge fund manager tells CNBC. “But then you’ve got a whole other sector of the market that has struggled mightily because of Covid-19. They’re selling at under-value relative to... a three-to-five-year outlook. So the rotation into that would seem entirely rational.”

Another legacy of the coronavirus pandemic will be less welcome to many investors. Druckenmiller reckons that inflation is likely to rise in the coming years, due primarily to the actions taken by central banks, and the US Federal Reserve in particular, in their efforts to protect the global financial system and offset the worst of the shutdown-related economic damage. 

Druckenmiller holds both gold and the cryptocurrency bitcoin as hedges against inflation. While he owns a lot more gold than he does bitcoin, he expects the latter to “work better”, notes Billy Bambrough on Forbes. “Bitcoin could be an asset class that has a lot of attraction as a store of value to both millennials and the new West Coast money and, as you know, they got a lot of it.” Druckenmiller adds that the digital currency is becoming more mainstream. “It’s been around for 13 years and with each passing day it picks up more of its stabilisation as a brand.”

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