Post-Election Note to Clients, November 2020
I hope everyone is staying healthy as COVID-19 continues to grab headlines both home and abroad. While this holiday season doesn’t seem to have the same family time and cheer as other years, there are some positive things to look forward to as vaccine hopes and a boiling recovery seem on the horizon. As we continue to think about all our families, let’s try to keep one thing into perspective: even in a pandemic like this, we are lucky. Lucky to have friends, family and people that are looking out for us. Lucky that we will persevere as we come out of this. Optimism and perspective will bring light to a dark winter.
More than just the social and economic impact COVID-19 may have on us, there are several variables that have been stirring the markets.
- A newsworthy election season for both the presidency, house, and senate.
- Continued measures to contain COVID cases mixed with optimism over treatments and vaccines.
- A pending stimulus deal, or lack thereof when many needed it.
- Corporate earnings that are both surprising strong and seemingly fragile.
- Monetary Policy that has no shame.
- End of year tax loss harvesting and other market related factors.
We consider many variables as we are thinking through investment decisions within portfolios. We refuse to become complacent and are always looking to find the best opportunities to steer investments while balancing our long-term investment philosophy. We are excited for 2021, but we still have 7 weeks left of 2020 that we can’t just skip over.
Is the Election over yet?
We can all thank Georgia’s odd state rules of majority vote leading us into a January special election. Its Georgia’s 2 seats that will determine which party has the Senate majority. Markets seem to like the idea of a divided government, holding onto the best of all worlds (more stimulus, infrastructure spending, limited tax reform, comprehensive plan to fight COVID outbreaks).
There was also a lot of concern over what would happen after the election in terms of civil unrest and possible violence in the streets. That failed to materialize, and markets breathed a sigh of relief by staging a rally. Maybe we can all get along peacefully after all.
COVID-19 Vaccine vs Rising Cases
While the world sets new infection records each day, there is optimism bubbling up over treatment, therapeutics and encouraging vaccine trials. A vaccine obviously sounds great, however there are logistical issues that need to be considered on these new drugs. Planning around production, distribution, and inoculation will take time. While we may be eager to get back to a more normal routine (especially those of us with young children), the impact on corporate and consumer behavior is likely to linger well beyond the headlines. In the past few weeks, the market has developed what seems like a tug of war between the “stay at home” stocks and the “reopening” stocks. Some of these shifts will be short lived and we don’t want to get to caught up in false trends.
We are still awaiting details and timing around fiscal support for people, businesses, States and Municipalities. It is a shame to see the livelihood of businesses, towns, and cities fall victim to Washington politics. While the discussions around what to do with stimulus and how much to deploy are healthy (Too much risks inflation; not enough could drag us back into recession), time is also an important factor. A stimulus deal is a positive sign for the market, but how much carnage will be felt this winter as we sit and wait? It isn’t a matter of “if”, but the “when” and “how much” will continue to linger. We think it makes sense to continuing to invest in companies that have enough cash and produce positive revenue during these times.
The Fed and Interest Rates
Fed Chairman Jerome Powell is watching the economy sharply, but long-term rates have started to rise as optimism about a recovery and end to lockdown measures materializes. The Fed was clear earlier this fall that rates would remain low through 2023, but the last few months have shown a slow rise in rates here in the US. Meanwhile, the market value of global debt with negative yields hit a new high earlier this month at over $17 billion. A head scratcher for sure, since we have yet to meet someone that is willing to offer a negative yield loan, but we’ll keep looking.
Year-end Tax Harvesting – With the losses in March and the rebound throughout the year, many are trying to offset gains and use losses that they do not want to carry over. You may see increased activity here in December, the losses typically drag the losing stocks lower, yielding a higher gain for high performers due to people making a reinvestment into better positions. We will be doing this in taxable account coming toward the end of month and will look for opportunities in December from this market movement.