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2021 Optimism – A Glass Half Full

2021 Optimism – A Glass Half Full

| October 30, 2020
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While it may seem like Covid19 will never end, we have seen some improvement in the global economy and certainly a rebound in equity markets. Consumer confidence recovered in September, alongside an increase in business activity, new orders, supplier deliveries and production. This led to higher third quarter results across major indices with the S&P 500 rising 8.9%. Most indicators appear to show the United States is in an early-cycle recovery phase as economic activity continues to bounce back from extremely low levels. The
manufacturing sector is leading the way and is working towards pre-pandemic levels, fueled by sharp recoveries in consumer durables like autos and housing. Still, some sectors such as service-based industries continue to lag with reopening challenges.

Big Tech continues to lead the charge with outsized performance coming from the likes of Facebook, Apple, Netflix, Microsoft, Amazon and Google. In fact, these six companies now make up nearly 25% of the S&P 500 and are leading the markets higher. They along with other major tech players were able to quickly adapt and even expand their offerings during the pandemic.

One of the key driving factors for the improving economy and better asset prices is the tremendously accommodative monetary policy and to a certain extent fiscal policy. Major central banks have expanded their balance sheets and injected liquidity into their economies at unprecedented levels and promise to stay the course for the foreseeable future. These efforts along with quantitative easing have held up Treasuries, lowered yields, and kept inflation suppressed. Additionally, previous fiscal stimulus and more importantly talks of new stimulus continue to put a floor on consumer confidence.

The 2020 election continues to dominate news and remains an area of concern for many. We believe this will increase short-term volatility and could lead to market swings especially if the election is contested or results are unknown for a long period of time. Certainly, we can expect some changes based on who wins the election. A Trump win would represent a more status quo scenario with limited effect on taxes, federal spending, trade policies, and a continued focus on deregulation. On the other hand, a Biden win (especially if it were a Blue sweep) would most likely bring changes in taxes, increased federal spending on infrastructure, more traditional trade policies, and a focus on re-regulation. However, when the dust settles, we continue to hold a positive outlook for the US economy long-term and believe that economic fundamentals are likely stronger drivers for stocks than who becomes the next President.

Covid-19 remains an ongoing focus and a disruption for a considerable part of our lives. Even though consumer confidence has found a floor, Americans remain cautious. This has led to savings accumulation for those who can save, and a hesitation to spend more on basic goods and services. To restore American’s complete confidence and bring spending levels back to normal we believe would require the pandemic to be under control. Ultimately, an effective vaccine would most likely be the key to slow the pandemic and provide increase economic openings.

While increased volatility should remain on tap for the near term, we would view times of market weakness as opportunities to invest heading into next year. With indicators showing the US in an early-cycle recovery, interest rates remaining low, and possible additional congressional stimulus and infrastructure spending on the way, economic expansion seems promising.

We continue to pray for all our client’s and their family’s safety and good health and are staying optimistic for an effective cure or vaccine soon.


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