That meant selling positions to realize losses during the first quarter market sell off that can be used to offset realized gains this year and beyond. We also continue to rebalance portfolios as tax efficiently as we possibly can.
We continue to manage portfolios custom tailored to our clients’ own unique goals, risk tolerance and time horizons. How are we positioning for 2021? Some things remain the same as they always have. After all, the last three presidents that failed to earn a second term (Bush 41, Carter, and Ford) all experienced economic recessions within 24 months of their respective re-election bids. From an economic standpoint, it really is no surprise that Joe Biden won the election. While President Bush did his best to bring the economy back from 9/11, the combined effects of the TMT collapse and financial collapse of 2008 led his presidency to the lost decade for both the US economy and stock market.
In fact, historical studies show that Democratic Presidents are slightly better for the stock market than Republicans largely due to the poor market results posted during the George W Bush years. Global monetary policies should also remain accommodative for the foreseeable future and keep a lid on interest rates.įor those that may be concerned about a Democrat occupying 1600 Pennsylvania Avenue next year, history shows that Democratic presidents are no worse for financial markets than Republicans. Both parties have expressed interest in moving additional economic stimulus forward, and we likely won’t see meaningful changes to tax policy until the economy regains traction. While some may still question the outcome of the election and there are still two key Senate races to be decided in Georgia, the washed-out Blue Wave likely means fiscal policies are ‘stuck in the middle’ and less likely to drift too far to the left or to the right. So where do the markets go from here? Markets clearly prefer certainty over uncertainty when it comes to fiscal and monetary policy. There has also never been a time when the five largest stocks represented such a high percentage of the overall index. We have not seen this sort of dispersion between the technology sector and the rest of the index since the days before the tech/media/telecom (TMT) collapse. This leadership, while not surprising as many of us shifted to a stay/work/learn from home environment, was not sustainable. The remaining 495 stocks in the index collectively declined 5%. Through the first ten months of the year, the most FAAAM-ous technology stocks that now comprise the top five constituents of the S&P 500 Index (Facebook, Amazon, Apple, Google’s parent Alphabet, and Microsoft) increased nearly 40%. Something else promising may be happening underneath the surface of the market as participation in the latest market rally has broadened out from just the mega technology stocks into other sectors. With Emergency Use Authorization (EUA), both candidates could be available for limited distribution in the US before the end of the year. Moderna has since followed up with an even more promising vaccine candidate from its Phase 3 clinical study. Markets also got an injection of good news as Pfizer and BioNtech announced that their COVID-19 vaccine candidate was found to be more than 90% effective in preventing infections in a Phase 3 clinical study. While the Democrats would love to take at least partial credit for the rally, in truth the market has reacted favorably to signs of a subsiding ‘Blue Wave’ as election results were tallied. This is an astounding recovery from the lows in March when the market had declined by more than 30% and we experienced the worst first quarter in stock market history!
While the stock market was essentially flat through the first ten months of the year, the market has rallied strongly since election day and is now up more than 10% for the year. Speaking of money, something peculiar happened as most of us headed to the election polls. No one likes to lose, particularly when it comes to elections and money, but eventually we will be able to move on from this election season and hopefully have a vaccine available for broader distribution to the general public sometime in 2021. We also seem to be stuck in the middle of a presidential election that no one wants to lose. Stuck in the middle seems to be the theme for 2020, as we are all stuck in the middle of a pandemic that seems to have no end. The song reached #6 in the Billboard Hot 100 during my birth year (1973) and was reborn again in 1992 with the release of Quentin Tarantino’s first full-length feature film Reservoir Dogs. The main line from the 1973 hit song by Stealers Wheel entitled “Stuck in the Middle with You” seems so appropriate for 2020. By Matt Quinn, CFA® November 2020 “Clowns to the left of me, Jokers to the right, here I am, Stuck in the middle with you.”
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