1st Quarter 2021 Newsletter
January 1, 2021
Here we go again!!! Another year is in the books and I think we can all agree that the last one wasn’t like any we’ve seen before! (Unprecedented? 😊) 2020 was a year of extremes in global financial markets. World equities crashed only to rebound in record fashion. A picture is worth a 1,000 words and does far better than we could at illustrating just how wild last year’s global stock market move was relative to history.
The S&P 500 Index went from top to bottom and back again within 175 days. Since its pandemic-driven low, the benchmark has rallied 68%, smashing old records and adding about $14 trillion in value. Technology and digital based companies led the way last year as comparatively old economy stocks underperformed.
Here are some key points on various market dynamics as 2020 ended on a positive note for risk assets:
· Performance dispersion was a major theme in 2020 despite the end result being a banner year for most major stock indices. About 39% of the companies listed on the S&P 500 ended 2020 in the red as economic growth plunged and the pandemic upended business, education and leisure plans of people across the world. The final two months of the year saw a “catch-up rally” in laggard areas as the US presidential election passed and positive vaccine developments made headlines.
· Coordinated worldwide stimulus, both fiscal and monetary, played the major role in supporting the prices of various types of investments. The end result is record debt and global interest rates at the lowest in history. Nearly 30% of all debt outstanding worldwide now yields less than zero.
· Despite the above-mentioned support from governments, the enduring effects of covid-19 on the economy are still uncertain. How and to what degree the real economy heals and transitions back to something more similar to “normal” will be a key focus into 2021 and perhaps beyond.
Looking out into 2021 we see some distinct risks and potential opportunities:
· Fixed Income in general has never been this unattractive. With rates at virtually zero on short duration relatively safe investments, all investor types are left with little yield. Additionally, extremely high levels of risk is present for the foreseeable future in both long duration government bonds and all corporate fixed income. This dynamic has zero historical precedent and will be front and center on our radar.
· We believe possible opportunity exists in areas of the global stock market that have underperformed in recent years. However, we feel that simply being based on “traditional value” will not be enough as such an approach could be highly dangerous. This is because the global economy has transitioned to a digital age and many businesses that appear “cheap” by standard measures are facing potential stagnation or even extinction in the years ahead. We expect many pure value-oriented investors to continue underperforming as has been the case for many years. Times have changed.
· A lot of lofty expectations are being touted by many market commentators when referencing 2021. While we also believe things could absolutely continue the path of the last couple of months of 2020, we caution against blind euphoria. We’ll continue to let the data tell the story and maintain a well-informed, quick trigger finger to bring down risk when necessary.
As always, we appreciate the opportunity to serve each of you. We look forward to more in-person meetings in the coming months, but remain available by any means to assist with any questions or concerns you might have.
Ryan A. Mumy, CFP®, AIF® Chief Investment Officer email@example.com
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