After a contentious election season, the fog is starting to lift, and we have a bit more clarity on what to expect in 2021.
Despite the chaos and uncertainty surrounding President Trump’s refusal to concede, the market is celebrating the outcome and pricing in a Biden victory with a divided Congress.
The market views this outcome to be favorable as it:
- Blocks a liberal mandate and forces compromise.
- Increases the likelihood of a bi-partisan infrastructure bill.
- Allows tax policy to remain status quo.
- Provides less resistance to big tech.
- Brings us back to the global stage as strategic trading partner.
- Ends unnecessary noise and distractions coming out of the White House.
Finally, interest rates are likely to remain low, and a terrible 2020 for corporate earnings sets the stage for impressive year-over-year earnings growth.
Areas of Concern
While the election outcome and vaccine news are positive and provide reason to be optimistic, we need to be mindful of the following:
- A second round a fiscal stimulus is needed and a divided Congress is likely to delay the process.
- We are still in a hostile political climate with headlines being driven by the extremes.
- The Georgia runoff election could result in a unified government. While this would be good for stimulus hopes, this would likely stoke fears of a liberal mandate and increased taxes.
- We are still not out of the woods yet with COVID-19, and a winter surge could very well bring another global lockdown which would compromise 2021 growth expectations.
- The Federal Reserve has exhausted much of its ability to stimulate growth.
What Are We Doing?
- For clients who are funding portfolios with cash, we are being cautious with the implementation and staging the investments over a 6 to 12-month period.
- For clients with known liabilities – living expenses, tuition bills, down payments – we are holding the funds needed in cash or cash equivalents.
- We are making sure clients have the proper international diversification to include portfolios with exposure to Non-U.S. companies domiciled in developed economies as well as emerging markets.
- For fixed income (bonds) we favor high quality bonds to ensure safety and to be a non-correlated asset to stocks.
I understand this has been an unsettling time, so please reach out with any questions or to talk about the markets and your portfolio in greater detail.