As we close the book on the tumultuous year that was 2020, it’s truly remarkable where we have ended up. Despite a global pandemic, the shutdown of the US economy, and a volatile election, markets ended the year at all-time highs. The year was a testament to the virtue of having patience in investing and keeping sight of the fundamentals and long-term outlook even as short-term fears dominated the news cycle.
The fourth quarter was particularly strong driven in large part by the announcement and rollout of coronavirus vaccines and the completion of the election, which together gave markets clearer expectations for the future. Cyclical and consumer sectors most weighed down by the virus strongly rallied, as did Technology sectors buoyed by digital adoption. The trades that Greenwood Gearhart made in portfolios throughout the spring and summer months positioned our clients well for the recovery.
As we mentioned in our November Monthly Market Moment, the Georgia Senate races were the final piece of the puzzle that markets were waiting for to assess the legislative landscape going forward. In winning two additional seats, Democrats have regained control of the upper chamber, thereby creating the possibility of a more ambitious agenda than otherwise would be the case. However, with the majority razor thin in both Houses moderates are going to have disproportionate power in the new Congress. Because of this, we expect any Democratic legislation to also be moderated before becoming law.
The markets cheer moderation and have reacted positively to this news. The new political environment paves the path to a new, larger, stimulus package to support the economic recovery, while at the same time leaving the chances of more controversial actions (like reversing the corporate tax cuts or overhauling the healthcare sector) more of a rocky road. Cyclicals continue to charge ahead, led by banks and infrastructure that are poised to benefit from higher government spending, as well as niche areas that are likely to be supercharged by the Biden agenda such as Clean Energy and Biotech. While the Big Tech names continue to be resilient, the prospect of more regulation has dampened their momentum.
As we go forward into 2021 we’ll be watching these themes closely as well as other key economic factors. While manufacturing and other areas have improved, unemployment remains elevated, and there is also the question of whether the stimulus drives inflation, which has the potential to shake up markets. The timeline and distribution of the Covid-19 vaccine will also be key to driving economic growth in 2021.
Finally, a word on the events of January 6th. We are viewing this seminal event in our nation’s history through several lenses. First, as investors, the markets have largely shrugged off the insurrection instead focusing on new stimulus measures and continued accommodative monetary policy. However, as Washington reaches a boiling point, these exogenous events related to the power structure of our country will be important to monitor as the new President assumes office. You can be confident we are watching closely. Second, like many Americans, we were disheartened by the assault on perhaps our nation’s most important building and the world’s symbolic beacon for democracy – the US Capitol. As optimists, we are reassured that democracy, once again, prevailed as it has in other key moments of truth in our nation. Although democracy is messy, we firmly believe this latest test will only serve to strengthen our form of government and our best days still lie ahead of us. Here’s to us all doing our part to provide for a better 2021 and beyond.
As always, thank you for your continued trust and confidence in our firm. We wish you and your family the best and welcome any comments or questions you have.