Investment Update: December 8, 2020Submitted by Affinity Capital on December 8th, 2020
The markets have been encouraged by COVID-19 vaccine news even though we are experiencing a fourth quarter spike in cases. The expectation of higher employment and higher economic activity in 2021 has investors re-entering the markets and repositioning their portfolios in anticipation of a post-COVID-19 world. The economic numbers for the fourth quarter may see a break in their upward trajectory due to the COVID-19 spike but the initially strong holiday retail numbers may soften the blow.
From our February 28, 2020 Investment Update:
“We think that this is an event-driven sell-off. While the Coronavirus is at early stages in both health related and economic tolls, it will run its course and be a part of history. Just as our nation and our markets have recovered from disease, war, oil embargoes and much more over the last century, so too will the markets recover from this. This crisis will run its course and have an endpoint.”
The positive news from the pharmaceutical industry regarding Phase 3 trials of COVID-19 vaccines have provided a rising tide to our economy and the markets. A smooth rollout of a distribution plan will be a further catalyst to the markets. The FDA will meet December 10th regarding emergency authorization for the Pfizer vaccine and December 17th for the Moderna vaccine. These companies are already producing millions of vaccines and any delay from the FDA could de-rail the markets. With that said, unprecedented coordination between industry and government lends confidence to the outcome, even though widespread read distribution will stretch into the second and third quarters of 2021. Even so, the vaccine is still a remarkable achievement.
The funding for federal agencies is set to expire and Congress is expected to enact a spending bill by Friday to keep government agencies working. The markets have some hope for a COVID-19 relief package but if not, have greater confidence that both sides of the aisle will find some common ground in the new congress. The major elements of a bill would be extending unemployment benefits, helping small businesses, and funding vaccines and their distribution.
The equity markets are reflecting that the uncertainty of the Presidential election is over. A rotation to value stocks, smaller company stocks and international stocks confirms this. While the markets historically favor divided government, we believe the markets will remain stable regardless of the outcome of the upcoming Georgia Senate races.
For 2021, an anticipated sizable infrastructure bill should offset any concerns of tax code revisions. The oil markets have enjoyed some recent advances due to both an expected increase in demand post-COVID-19 and a possible reduction in U.S. drilling which would then lower supply. As the economy heats up, we look for inflation to enter the conversation and longer maturity bond yields to rise. Remember, bond prices and yields are inverse: when yields rise, prices decline and vice-versa. Therefore, we maintain a broad diversification in our income producing fixed income securities allocations.
As we enter the final stretch of 2020, we will continue to position our portfolios for 2021. At present we are adjusting taxable accounts for tax gain and loss balancing.
As always, please contact us with any questions you may have concerning your investments. We work with estate and tax planning professionals as well and are available to work with them for your planning needs, especially at year end.