Wishing you a Happy New Year feels like a remarkable understatement. Don’t worry - I won’t subject you to a rehash of 2020 and the incredible challenges the year brought. I will, however, point you to a few interesting tidbits that hopefully frame a better 2021 and beyond.
The 3-Legged Stool Got It’s Third Leg
In our March 27th piece, we wrote about the 3-Legged Stool of Economic Recovery.
Since then, we’ve seen remarkable progress, and now all three pieces are in place. From an economic perspective at least, 2021 is looking to be a year of recovery and renewed hope.
Monetary Stimulus:
The Federal Reserve remains incredibly accommodative. The Fed wrapped up its December meeting with the majority of FOMC members seeing no rise in rates through 2023. They also committed to ongoing asset purchases to support the economic recovery.
In an interesting twist (and one that’s been viewed positively by investors), former Fed Chair Janet Yellen was nominated by President-elect Biden as the country’s first female Treasury Secretary. Yellen, seen as a dove (accommodative) during her tenure as Fed Chair, is known for her commitment to boosting labor markets. She and current Fed Chair Jerome Powell will likely work together to bolster the economy.
Fiscal Stimulus:
In addition to the $2 trillion plus CARES Act, Congress just approved $900 billion dollars in additional aid. The plan includes a $300 weekly unemployment supplement, $600 in direct payments to adults and children, $300 billion in Paycheck Protection Program loans, and $8 billion for vaccine distribution1. We’ll probably see another stimulus package once the new President and Congress take office.
Health Crisis Improvement:
Despite fits and starts of controlling the pandemic, we find ourselves reaching record cases, hospitalizations, and deaths as the calendar turns from 2020 to 2021.
To date, we have three therapeutic treatments for the disease – Gilead’s Remdesivir, Regeneron’s antibody cocktail, and the steroid dexamethasone.
Thankfully, we have two vaccines approved for emergency use authorization as well. As we speak, Pfizer and Moderna’s vaccines are being distributed to health care workers and residents of care facilities.
Moncef Slaoui, the chief advisor to Operation Warp Speed, estimated that 20 million Americans would be vaccinated by the end of 2020, a mark we’re falling well short of. However, there is reason for optimism. Johnson and Johnson and Oxford-AstraZeneca’s vaccines are in phase 3 trials and appear to be ready for distribution in early 2021, and projections are that most Americans who want a vaccine will get one by the end of Q2 2021.
Source: NY Times; *The third vaccine in use is Russia’s Sputnik Vaccine, which is currently approved in Russia, Belarus, and Argentina2.
Asset Class Returns
We can’t say this enough - investing is HARD! There are just too many variables for one to accurately and consistently pick the direction of markets.
Here’s a summary of YTD returns across major asset classes through December 22nd.
Even if we had clairvoyant knowledge that a pandemic was coming back in January, it would have been impossible to predict an outcome such as this. In fact, all but two of the major asset classes are in the green for the year!
Having a plan and sticking to that plan prevailed again.
Dow Hits 30,000 in 2020
The Dow Jones Industrial Average hit 30,000 for the first time in history on November 24, 2020.
There were news stories, celebrations, and a lot of smiling investors.
But it also got me thinking, why do we celebrate these milestones, anyway? 20,000, 25,000, 30,000? These round numbers seem pretty arbitrary and meaningless, really.
However, upon further reflection, I realized that we celebrate these milestones because of what it took to reach them. These high-water marks give us a moment to reflect upon all of the highs and lows, the sacrifices investors made to save their hard-earned money, and the discipline it took to stay in the game.
These data points also confirm that capitalism is working. It’s not a perfect system, but markets are functioning as intended. Ultimately, those who invest in markets are rewarded for their risk. Companies with big ideas are receiving capital and bringing value to the world.
I’m looking ahead to Dow 100,000. It may seem absurd until you realize that we could get there in just 16 years if the Dow averages 8% per year from here on out.
Economic Outlook Breakfast Webinar – January 20th, 9am
We are once again hosting our annual Economic Outlook Breakfast - only this time, without breakfast. Of course, we’re disappointed that we won’t get to see you in person for our 13th annual event. But we’re also excited to make the best of it by connecting with you online. And the upside is that you can stay in your PJs!
This year, our guest of honor is Chris Shuba, CEO of Helios Quantitative Research. In finance terms, he’s what we affectionately call a “Quant” – an analyst that adheres to a strict mathematical, emotionless approach to asset management. Chris’ firm provides economic, market, and portfolio construction research to advisory firms across the country, collectively managing over $30 billion in assets. Although they are nationwide, their headquarters are right here in Granite Bay, California.
Helios and their team of analysts are one of the research firms we use at Boyd Wealth Management to support our investment process, portfolio construction modeling, and ongoing portfolio risk assessments.
In early 2021, we’ll be rolling out portfolio upgrades and added capabilities supportive of your long-term financial goals.
We’re excited to have Chris and hear his thoughts on the economy in 2021. Look for an invitation next week with sign-up info! If you already know you’d like to attend, just let us know.
Happy New Year and happy planning!
Brian
Further reading/Sources:
2. https://www.nytimes.com/interactive/2020/science/coronavirus-vaccine-tracker.html