Hello again! I’m Johann Komander, Greenwood Gearhart’s Director of Research, and welcome back for our Monthly Market Moment for December. A lot has transpired in the last month, with the conclusion of a pivotal election and developments in the ongoing health crisis driving a lot of market movement, as investors gauge what 2021 is likely to look like.
First of all, it’s been a great month for markets, with most indices back up near all-time highs and lagging sectors bouncing strongly from their discounted valuations. This has been driven by a number of forces, most importantly announcements in recent weeks of multiple successful vaccines for the Coronavirus. This, in turn, has given the market confidence that the economy will continue to rebound as we head into the middle of next year, as bottled-up demand in the Services part of the economy is unleashed. Sectors of the market that have the most to gain from this such as travel, energy, and banks have bounced strongly as a result. At the same time, technology stocks and other sectors that have benefited from the “stay at home” economy have largely held their gains even if they’ve started to lag a bit, as many structural changes related to technology use are likely to persist.
This has all coincided with an improved picture of the political landscape going forward. With Joe Biden announcing former Fed chair Janet Yellen to be his Treasury Secretary the markets have a well-known and famously methodical force in the driver’s seat for fiscal policy. And other appointments of seasoned civil-servants to key positions has further placated markets and provided a sense that government policy will be quite predictable going forward. Add to that continued improvements in economic data and highly supportive monetary environment, and it’s clear why November was a great month for markets.
The flipside to all of this optimism though is that it sets the market up to be disappointed if we run into any hiccups along the way. We aren’t out of the woods on COVID by any means, with the recent spike likely to soften business activity through the winter, and then there are the shear logistical challenges of rolling out the vaccines. Employment gains have slowed as well and actually started to reverse, with new jobless claims now rising again. This, in turn, is putting more pressure on Congress to put politics aside and get a new stimulus deal done as unemployment benefits run out. there is still the wildcard of the Georgia Senate run-offs, which have the potential to alter the legislative landscape if Democrats win. So, while this renewed optimism is undoubtedly a strong positive for investing over the long term, there is a good chance of seeing some volatility in the short-term.
We are highly confident though in our ability to not only successfully manage this period of flux but come out stronger on the other side. In particular, our investment strategy has a great balance right now between cyclical and consumer sectors that stand to gain the most from the immediate economic recovery, along with technology and other growth areas that are best equipped to ride the long-term trends that will supercharged coming out of this period. This balanced approach we believe will allow portfolios to benefit from both themes that will play out just in the next 6 months as well as trends that will be driving market returns over the next decade. And as we come out of this period, we believe improved corporate earnings and consumer spending will provide a critical level of support for the market to continue its march higher. So while much uncertainty certainly remains we remain optimistic heading into next year.
Thank you for watching our December Market Moment and hope you and your families are keeping warm and staying safe. Thank you for watching.