Information as of November 30, 2020
As we are about to enter a long winter of often grey skies, frigid temperatures (at least for most of us!!) and relative isolation, it is important to remember how far we have come in a few short months. Our recent economic and investment update includes:
• The beginning of a major worldwide pandemic with COVID-19
• Restrictions imposed in response to the virus, causing a severe global economic contraction.
• A steep market decline followed by a robust stock market rebound
• The election of a new president
• Development of effective vaccines expected to be ready for distribution, beginning in December 2020
Investors appear to be shrugging off any negative news related to the pandemic. The fact that the stock market is a forward-looking indicator based on earnings and factors affecting those earnings best explains why the US equities are reaching new highs. Investors are betting on the economy returning to normal in 2021 after the vaccine is successfully preventing further spread of the virus. Are investors being too optimistic about how quickly the economy, businesses, and people recover? Perhaps. Given the lofty prices of US equities, it remains to be seen if US stocks can continue their upward trajectory, particularly as the economy struggles to recover.
Interestingly, the optimism behind the US stock market rise has spilled over to other more “forgotten” categories, namely stocks from emerging market countries and value stocks in the US and abroad. These asset classes have underperformed relative to US stocks for the past several years. Emerging market and value stocks have been particularly hard hit during the pandemic. But as world trade begins to revive and the old non-digital economy starts to rebound, these stocks stand to benefit. Since your portfolios have exposure to Emerging Market and value stocks, your investments are positioned to benefit as well.
Prior to this economic and investment update, we have spoken with many of you about how politics and incoming presidents typically do not influence the greater economy and the stock market. For many, there is great optimism that the policies and programs developed by President Elect Biden and his team will benefit not only society but the economy as well. Although being optimistic about the future is a good thing, past history suggests that at least in the short run, a president’s policies have only a marginal influence on the economy and the stock market.
Other external factors such as the timing of the economic cycle, the domestic savings rate, consumer and business optimism, the role of technology, global trade all play important roles in how the economy grows. That is not to say that the role of government policy isn’t important, it simply means that, given the complexity of the economy, it is too hard to attribute its growth to any one factor.
What a crazy year it has been! As we enter the holidays and look forward to a New Year, we hope that we soon will do the things we planned to do again. As always, Christina and I are here to help.
Our previous quarterly updates:
SPECIAL NOTE REGARDING YOUR CLIENT WEALTH PORTALS: Unfortunately, our current client relationship software (CRM) is terminating unexpectedly at the end of December. Many of you use the portal to upload documents securely. This will no longer be available after 12/31/20, although we will replace with an emailed link with which you can upload documents securely. There will be other changes as well — December will be busy as we choose and organize our new CRM.