“Don’t let the door hit you on the way out!”
I think that most of us feel the same way about having 2020 in our rearview mirror. It’s been a year of upheaval, tragedy, terror, grief, and uncertainty. The worldwide COVID-19 pandemic which began in January in China quickly overtook most of the world with devastating fury. Although recent news on the vaccine front has introduced a sense of optimism, we have still got a long way to go before life returns to any sense of normalcy. Aside from the Coronavirus, America has suffered mightily. We have had social protest and unrest following the killings of African Americans by white police officers, natural disasters such as a record number of hurricanes and fires, and a hotly contested Presidential election. 2020 has been a year unlike any other in my lifetime, and I’ve been around for a while.
By necessity, all our lives have changed because of COVID-19. I guess that perhaps some introverts have been preparing their whole careers for an excuse to stay in place, but not me. As a serious extrovert, I like to hug and kiss my friends. I haven’t hugged anyone other than my wife Lynne in ten months, and even handshakes are out of the question. Wearing a mask and socially distancing takes daily intentionality. I normally travel quite a bit, both for business and recreation. I haven’t been more than 15 miles from my house in months. Working from home is anathema for me because we have four dogs who bark at anything that moves. Using Zoom, GoToMeeting, and WebEx gets the job done, but it’s rather a hollow experience. Body language is such an important part of human behavior, and it is all but non-existent in remote contact scenarios. What the post-COVID-19 work landscape will look like is anybody’s guess.
In the face of a largely negative news cycle, the stock market had another positive year. The dichotomy between Wall Street and Main Street has been profound. Many small businesses have shuttered their doors (most permanently) and unemployment hit levels not seen since the Great Depression. The second stimulus (better-termed relief in my opinion) bill will soon go into effect, but it seems both late and weak. Millions of Americans have incurred financial hardship this year, and our Federal government has been largely missing in action. In the face of this massively conflicting information, equities still moved higher. It’s true that the stock market is a forward-looking mechanism, but have we gotten ahead of ourselves
My feeling is that some sectors are overvalued here. The “stay at home” types of growth stocks, mostly in the NASDAQ, tremendously outperformed their value counterparts. As the economy begins to normalize in the spring or summer, there might be a rotation back into the boring cyclicals and industrials. There has been more than a bit of euphoria as of late. Bitcoin has seen its “value” increase by over 180% this year. Several popular NASDAQ securities are currently selling at large multiples of sales, not earnings. Shades of 1999? Perhaps in the exuberance, but at least most of these companies are actually doing plenty of business rather than the garage pipedreams of two decades ago.
There are also worries about the new Biden/Harris administration. If the Georgia runoff election next Tuesday results in a Democratic-controlled Senate, it is likely that we will see some tax increases in the near term. If at least one Republican holds their seat, however, fiscal changes will be nearly impossible to be achieved. Frankly, Wall Street has reacted favorably to the Biden victory because of stability and the fact that he has appointed no “far-left” Cabinet members. The tax increases that he advocated during the campaign if enacted, would doubtless create a headwind for stocks.
Let’s not underestimate the power of the Federal Reserve to keep equities at high levels. Although interest rates are slowly inching up (the ten-year Treasury is at almost a 1% yield!), there appears to be no appetite for a rate hike while the economy languishes. Dovish monetary policy continues to be a boon for borrowing at all levels and the housing industry. The American consumer is a major component to equities success, and we’ll have to see how quickly folks become comfortable traveling, dining out, and recreating.
Switching gears now… we always use our last missive of the year to review predictions that we made twelve months ago, and also bravely consult the oracles for the upcoming year. Obviously, COVID-19 threw a huge monkey wrench into all 2020 prognostications, but let’s see how we did anyway:
1) The Presidential election will be contested by two seventy somethings. NICE TO GET ONE RIGHT OUT OF THE STARTING GATE.
2) Angela Merkel will step down from the Chancellorship of Germany. SHE DOESN’T EXACTLY LOOK HAPPY THESE DAYS, BUT SHE’S STILL AROUND.
3) 2020 will be another record year for climate change related events (fires, earthquakes, hurricanes, cyclones, ice cap melt). THIS ONE COULD BE CORRECT ANY YEAR I WANT TO USE IT.
4) Both the Senate and House of Representatives will be under Democratic control. At least one prominent Republican Senator will lose his/her seat because of fallout related to the impeachment trial. WE HAVE TO WAIT UNTIL 5 JANUARY TO DETERMINE THE FIRST PART OF THE STATEMENT. THE SECOND PREDICTION DID NOT OCCUR.
5) The Federal Reserve will neither raise nor lower interest rates in 2020. YEAH!
6) US stocks will have a positive year, with gains in the high single digits. International markets will slightly outperform on a relative basis. FAIRLY ACCURATE ASSESSMENT.
7) Gold will temporarily spike in price during the election cycle due to the fear that President Trump will not be re-elected. GOLD’S HEALTHY PRICE INCREASE WAS NOT TEMPORARY AS IT OCCURRED THROUGH THE YEAR, BUT I CALLED THE UPWARD MOVE CORRECTLY.
8) The Boeing 737 Max fleet will finally be approved for world air travel. IT APPEARS AS THOUGH THIS IS HAPPENING, BUT NOBODY’S FLYING AND AIRCRAFT ORDERS ARE MORIBUND.
9)There sadly will be a major terrorist event on either American or European soil. THANKFULLY, WRONG ON THIS ONE… COVID-19 WAS MORE THAN ENOUGH TO HANDLE.
10) Major network televiewing habits will decline in 2020 on account of political commercial fatigue. PERHAPS COVID-19 HAD A PART IN THIS ONE AS WELL WITH EVERYONE STAYING AT HOME, BUT THE ASSERTION DID NOT COME TRUE.
OK… not too bad even with the advent of the Coronavirus. Now let’s see what the admittedly opaque crystal ball has in store for 2021:
1) President Trump will finally vacate the White House on 20 January but will neither admit defeat nor give a concession speech.
2) Once again, the Federal Reserve will make no changes in interest rate policy.
3) There will be a major utility grid disruption in either the US or Europe during the summer.
4) Former Ohio State football coach Urban Meyer will be the new coach of the Jacksonville Jaguars in 2021. Number one draft pick Trevor Lawrence of Clemson will be his starting quarterback.
5) Cryptocurrencies will continue their meteoric rise but will have a major price reckoning later in the year.
6) As Tea Party Republicans lose their obstructive power in Congress, we will have bipartisan infrastructure legislation passed as well as a third and final round of stimulus.
7) The world will be at relative peace (emphasis on the word relative).
8) Stocks will have a tepid year with growth in the low to mid-single digits. As I mentioned earlier, there will be a reversion to the mean for value and dividend stocks.
9) Donald Trump will purchase the OAN News Network and become its primary on-camera talent.
10) We will be happier by this time next year!
As we close out this most troubling and difficult year, I would like to thank all of you for your continued trust and support. It will be refreshing when I can become more visible than my current web avatar presence. I am looking forward to seeing you as conditions warrant in 2021. In the meantime, RC, Christie, Ruth, and I are here to assist with any needs that you have. Stay safe and stay sane… take care… Happy New Year!
|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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