How does one even begin to sum up 2020? It is very tempting to catalog everything that happened, but let’s leave that effort to the news organizations and the historians. Instead, let us look forward. As we look at 2021 three major trends are emerging: political disruption, Coronavirus changes, and economic evolution.
It seems after every election we are amazed by the vitriol that has been injected into the political sphere. The 2020 election had more than its fair share. The results show us a country that is deeply divided on a number of issues and this division brings with it increased uncertainty for businesses as both regulation and taxation will be oscillating from one extreme to the other. That being said, American businesses are extremely flexible and should be able to handle it. No matter what the make-up is of the U.S Congress, the reality is there will be only so much the new administration will be able to get done before the mid-term elections. While politics will continue to dominate headlines there may not be much in the way of sustained market moving actions.
Regarding COVID-19, the vaccine rollout has started. Most estimates seem to put the achievement of some type of “herd immunity” due to vaccinations and survivors of COVID-19 as sometime around late summer. As that effort comes to fruition and we get back to “normal” there will likely be some amount of walking back of the major COVID-19 trends. Those trends include working from home, suspension of business travel, movement to smaller communities, and de-globalization. It is hard to put the genie back into the bottle though. While some rebound will occur, these were trends that existed before COVID-19 and will likely continue into the future.
One other change out of 2020 will be harder to walk back, fiscal and monetary support for the economy. As I mentioned in my last newsletter, we have seen an unprecedented amount of support for the economy both from the U.S. Government (fiscal) and from the U.S. Federal Reserve (monetary). Similar support, but on a much smaller scale, happened during the 2008 Financial Crisis, but what happened in 2020 dwarfs the efforts in 2008. This will likely continue into 2021.
Far from just supporting those individuals hardest hit by COVID-19, a fair amount of the stimulus seems to have found its way into asset prices. We’ve seen record prices in stocks, some real estate (Location, Location, Location), gold, cryptocurrencies, and even collectable sneakers! Do these prices reflect a bubble? The answer to that question will likely depend on whether or not it continues.
From a monetary point of view, it is unlikely to change. The current Chairperson of the U.S. Federal Reserve has stated that they plan on keeping interest rates low thru 2021 at least. Of course, he may be replaced with the incoming of the new administration, but it would very surprising if that view changed. Likely the Federal Reserve will continue to offer material support for the economy until it sees clear signs of the economy strengthening like near full employment or strong inflation.
From a fiscal point of view the outlook is murkier. A lot may depend on the makeup of the Congress, but no matter which party controls the different chambers they would be hard pressed to not continue with some sort of stimulus early in 2021. The only real question is the amount and how it is distributed.
As we look to 2021, we will be offsetting the (hopefully diminishing) effects of COVID-19 against the fiscal and monetary support. We think the market should continue to show some strength and interest rates should continue to stay low.
On a personal note, I would like to thank you, our clients, for the flexibility you’ve continued to show my staff and myself with online meetings and dealing with the vagaries of sending documents through the mail or over the internet. We are planning to continue to meet virtually or over the phone well into 2021. As always if there is anything we can be doing better to help you understand your financial situation, please don’t hesitate to reach out to me. c
Kevin P. Sullivan, CFA, CFP®, AIF
1229 Lake Plaza Drive
Colorado Springs, CO 80906
719.576.4500
Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC. Investment advisory services offered Raymond James Financial Services Advisors, Inc., and Sullivan & Associates. Sullivan & Associates is not a registered broker/dealer and is independent of Raymond James Financial Services, Inc.
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