Welcome to our first Monthly Market Moment, where Greenwood Gearhart's Investments team shares some insights on the market and how we are thinking about the investing landscape.
First of all, what an interesting year this has been! We had a pandemic which caused a 30% drop in the stock market followed by one of the sharpest recoveries on record. With that came changes to everything from labor markets to real estate to technology use. And now, as we move past one of the most watched elections in generations, markets are again recalibrating their bets for the next 4 years.
As we expected, the uncertainty around the election drove volatility in recent weeks. The markets were balancing the chances of a Democratic sweep, and potential increases in taxes and spending, with a divided government that would result in “more of the same”. It appears we are ending up with the latter, an outcome markets generally like because it means continued gridlock. It also means that many of the trends currently defining the market are likely to continue doing so.
For example, even though health insurers may have less reason to fear increased regulation they still have to contend with companies like Amazon and Walmart entering the fray. We believe the “Big Tech” companies are likely to continue getting stronger, exerting their power on even more areas of the economy. And with the prospect of a “New Deal” style package off the table, the risks of inflation and higher interest rates will likely subside, allowing cheap credit to continue driving valuations.
There is a wildcard however down in the Peach State of Georgia which we are watching closely. Two special election races will ultimately decide control of the Senate in January. This means some uncertainty remains as to the magnitude of policy-shifts that could stem from a potential all-Democrat government. As much as the market (and all of us frankly) might want to move on, it looks like we may still have some election volatility before we close out 2020.
Longer-term, however, we are reminded that stocks have performed well over the decades regardless of whether a Republican or Democrat is in the White House. Since FDR took office in 1933 a $1,000 investment in the US stock market has grown to over $14 million today. During that time there have been exactly seven democratic presidents and seven republican presidents. This is a politically charged period in our nation’s history with many feeling as though they are winners, while others feel as if they’ve lost. Keeping our eye on the greatness of our country provides important perspective.
We continue to evaluate the portfolio not just for the election result, but for the post-COVID world. Our goal has been to position your capital in a way that provides for the most favorable outcome as the economy recovers. In addition to the ongoing election drama, we will be watching Congress’s ability to pass a relief package as well as the implementation of the vaccine which will rely on unprecedented logistics to distribute it to 300 million Americans. You can be confident that we are monitoring these developments in real-time on your behalf.
Thank you for tuning in to the November 2020 Monthly Market Moment brought to you by Greenwood Gearhart. We hope that your families are staying well and welcome your questions and comments.