Is It Time To Fully Return To The Market?
by Eric Nager on Dec 4, 2020
We believe that enough of the uncertainty regarding the election outcome has been resolved in order to complete our return to the market. However, there are still two outstanding issues that could stir social and market unrest: the first is a Trump victory through legal action (at this time it is possible but it is a longshot). The second is a victory by the Democrats in both Georgia Senate races. This would mean that we would not have divided government (meaning that the President and either the House or the Senate would be of different political parties). The stock market likes it when there is some restraint on political power.
The bright prospects for the economy, in our view, outweigh the two potential disruptions. The record breaking third quarter GDP growth (thirty-three percent on an annualized basis) is expected to slow down in the fourth quarter because of the Covid flare-up but still come in at or above three percent. The predictions for 2021 are in the four percent range which is very strong. There is a lot of momentum in the economy from the businesses that have been permitted to reopen. Also, next year's prospects are good due to pent-up demand from this year of lockdowns – people want to travel, go places, do things and have fun.
Effective vaccines seemingly will be available within a couple of weeks for high risk groups and more generally available by the first or second quarter of next year. At that point the economy should be unleashed to realize its potential.
It is very likely that a stimulus package will be approved within the next month or two. Presently a $900 billion package is being discussed. The market as well as the economy would be happy with that outcome. We also have an accommodating Fed that has stated interest rates will remain low for the near and intermediate term. Also, Chairman Powell said that the $120 billion per month addition to the Fed's balance sheet will continue.
The above paragraphs represent our line of reasoning at this time and is why we are in the process of returning to a fully invested position. As always events can suddenly change which could impact our strategy. Please do not hesitate to reach out to us concerning your personal investment questions.
Terry E. Nager , CFP ® , ChFC ® , CLU ®