Are We Poised for Better Times or will “2020” be 24 Months Long?
A new president. Resilient markets. Escalating Covid19 cases…but with vaccines near ready for distribution. What does it all mean? Are we poised for better times or will “2020” be 24 months long?
Despite the continuing battle with Covid19, there is much good news on the horizon. November was one of the best months in history for the markets and investors. There are numerous global and national indicators that foreshadow a much better year ahead.
To distill the onslaught of “news noise”, we have outlined the key points we believe you should be aware of as we move into the new year…a year that seems long overdue.
- During November, US stocks rallied post-election as investors were hopeful that a divided government would hamper any progressive changes to taxes and healthcare and keep growth as one of the main focuses going forward.
- Big cap Tech, Healthcare, and Communication Services were up while Materials, Utilities, Industrials and Financials all were lower.
- Global stocks returned 13.4% which would be the highest in history. The strong performance was widespread with international developed up 2.2% (17.0% MTD), emerging markets up 1.8% (11.6% MTD), and the S&P 500 up 2.3% (11.4% MTD).
- In the US, small caps (3.9%; 20.7% MTD) and tech (NASDAQ: 3.0%; 12.0% MTD) outperformed.
- Oil climbed 8.0% on higher risk-on sentiment while gold fell -3.2%.
- Rates were mixed, and the USD fell -0.7% bringing the YTD fall to -4.8%.
- US Q3 GDP came in at 33.1% quarter over quarter vs. an expected 32.0%. GDP remained 2.9% below its level in the third quarter of 2019, and 3.5% below its value in the fourth quarter of 2019.Covid19 Update:
- UK PM Johnson announced a second national lockdown that ended on Dec 2nd. And the UK is extending financial support for workers through March of 2021, as it was to end on October 31st.
- Germany and France also announced new lockdowns that will run for one month. Employees in both countries are being urged to work-from-home where possible. However, to cushion economic impact of lockdowns, schools and factories will remain open.
- US recorded 4.0 million new cases during the month of November with new case rates rising in 41 states. Hospitalizations soared during the month of November as well.
- There was good news regarding vaccines, with three candidates reported to be more than 90% effective. The first US vaccinations are expected to begin in December once the FDA grants emergency authorization.
- The health of the labor markets remains one of the keys to an improving global economy.
- During November the economy added approximately 245k jobs which is the slowest month since the spring.
- In November, the unemployment rate fell to 6.7% from 6.9%.
- Job gains were strongest in transportation and warehousing (much of that could be the approximately 425k jobs that Amazon has added over the past 10 months…1,400 per day). Healthcare, construction and manufacturing were strong as well.
- US Business Confidence is improving which may support the labor markets in the coming quarters.
- Unemployment benefits for an estimated 12 million workers will expire at the end of the year. There is further action needed from DC to assist those in need.
- U.S. Conference Board consumer confidence missed estimates and fell slightly to 100.9 from 101.3. The improvement in consumer confidence continues to lag that from businesses and remains far from pre- Covid levels.
- Personal income fell 0.7% in November. Overall consumer spending, which drives as much as two-thirds of economic activity, has slowed in recent months along with the expiration of some emergency government spending programs.
- Online US retail sales were boosted by Black Friday and Cyber Monday sales. Consumers spent approximately $23.5 billion in the four-day Thanksgiving-to-Sunday period, up 23% from last year. With foot traffic down in most stores, it is being called “Bleak Friday”
- The Fed announced that they would allow inflation to go above the 2% mark.
- The FOMC suggested that it will not increase interest rates through 2023.
- Mortgage have dropped to another record low.
- Fed Chair Powell stated that economic recovery has been quick and swift but continued aggressive fiscal and monetary stimulus is needed to continue the recovery. He reiterated the key to the recovery is continued job creation, increased goods consumption and business formation.
Things To Watch:
- Some of the biggest concerns right now are around:
- resurgent coronavirus cases/mitigation measures
- vaccine rollout/supply chain
- lack of near-term fiscal stimulus
- Some of these concerns have overshadowed strong Q3 earnings results though good news has already been priced in. Central bank liquidity is still seen as the biggest positive for stocks.
- The health of the labor markets will remain a key condition to the recovery of the economy. Additional fiscal stimulus should be key to helping workers bridge the income gap until jobs come back to pre-Covid levels.
- The U.S. consumer continues to drive over 70% of U.S. GDP. Thus, consumer sentiment will be a critical factor going into Q4 and as holiday spending begins.
- Trade talks between China and U.S. are another area we are watching closely. Specifically, what impact it will have on global supply chains and multinational companies operating in China.
What We Are Watching Post-Election:
- Stimulus package passage
- White House and Congress focus on further economic stimulus
- Virus containment by mid-2021
- US economy growth continuing
- Inflation risks could rise
- Investors are risk-on and the cyclical stocks should begin to outperform
What Should Investors Do?
We are helping our clients stay focused on long-term goals and avoid emotional decisions. Remember that politics is not policy and headlines seldom are anything more than distractions. Know that, in the long run, changes in the presidential administrations rarely lead to fundamental changes in how the U.S. economy works, especially if Washington DC is divided.
“Time in the market” always beats “timing the market”. If you have a thoughtful and up-to-date investment strategy, staying the course should be the best path forward. If you are not sure, the Sound Legacy team http://soundlegacy.com is happy to talk with you, review your portfolio, and share our thoughts and recommendations.