Is that a bright light at the end of the tunnel or is it a train that’s about to run us over?
To overstate the obvious, November was a tumultuous month. President-elect Joe Biden won the hotly contested race for the highest office in the country. Outgoing President Donald Trump still hasn’t conceded the result. We don’t know about control in the Senate because Georgia’s two seats won’t be decided for thirty-five days. COVID-19 cases, hospitalizations, and deaths continue to almost geometrically rise. In the midst of the hubbub, stocks had a wonderful month. Why?
I’ve stated many times that Wall Street hates uncertainty. Regardless of how you feel about the election results, the fact of the matter is that we now know who will occupy the Oval Office. In addition, Biden has not pandered to the far left of the Democratic Party in his early Cabinet appointments. There’s been little or no mention of Sanders, Warren, or Ocasio-Cortez playing any part in the new administration. Janet Yellen is a spirited choice for Treasury Secretary since she’s dovish on monetary policy. Wall Street has great knowledge of Yellen from her tenure at the Federal Reserve. If at least one Georgia Senate seat remains in the Republican camp, the Senate will still be led by Mitch McConnell. It would appear likely that any significant tax increases would have little chance of passage in a gridlock scenario. Traders and investors alike seem happy with the new political calculus thus far.
News on the COVID-19 front has a silver lining as well. Vaccines from Pfizer and Moderna have been shown to be remarkably effective in clinical trials. It is hoped that free and widespread availability of vaccines will happen sooner rather than later. This could be the catalyst that propels us on a path to regain some semblance of normalcy in our lives. Wall Street has applauded this news flow. Will the positive trajectory continue or will Santa’s journey be detoured?
There are several things that could derail progress, but two stand out. The first is the aforementioned Georgia Senate race. While the results won’t be known until 5 January, there could be an inkling before then. If Democrats win both seats, Chuck Schumer would preside over the Senate. The prospect of serious tax increases would be front and center, and I doubt whether investors would champion that concept. The second fly in the proverbial ointment is the lack of a stimulus package on the table. Our feckless Congress is now on vacation instead of working things out so that the millions of people who have been adversely affected by the pandemic can get some monetary relief. Many benefits will run out at the end of the year. The longer the wait for stimulus, the more we risk the consumer not being able to participate in the economy.
It’s safe to say that most of us will be happy to see 2020 in our rear view mirror. The pandemic has made our lives more difficult in many ways. My personal situation has seen profound loss, as both of my in-laws passed away in the last seven months. All rites of passage – births, weddings, graduations, celebrations, deaths – have been severely muted. But life goes on.
Next month’s installment will review the accuracy of predictions that I made a year ago for 2020. We’ll also see what the crystal ball has in store for 2021. Until then, try to be thankful for what we have. I know that it’s growingly difficult, but there appears to be some promising light at the end of the tunnel. RC and I will continue to monitor your portfolios and recommend changes once the landscape becomes clearer in January. It will be a very different holiday season… enjoy it as best you can. Take care. Stay safe and stay sane. Thanks as always for your trust and support.
|The opinions expressed in this letter are those of William Schiffman and should not be construed as specific investment advice. All information is believed to be from reliable sources; however, no representation is made to its completeness or accuracy. All economic and performance information is historical and not indicative of future results. Diversification cannot assure a profit or guarantee against a loss. The S&P 500 Index is a broad based unmanaged index of 500 stocks, which is widely recognized as representative of the equity market in general. Indices are unmanaged and do not incur fees. One cannot directly invest in an index.|
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