Anytime I can fit a picture of Bill Murray and Punxsutawney Phil from the movie “Groundhog Day” into a business note, it’s a must do.
The twists and turns so far make it seem like 2020 is dragging into a second season.
As an American, I’m shocked and worried, and I’m wondering how political disagreements by both sides have turned into excuses for violence.
As a financial professional entering my 29th year (ugh), I know that the politics, protests, and rioting in DC are just one-factor affecting markets.
I honestly don’t know what will happen over the next few weeks, but my goal, as it is always, is to try to help you understand how it affects you as an investor.
Why did markets surge the day the Capitol was attacked?
While the world watched the violence in DC with horror, markets quietly rallied to new records the same day.
That’s weird, right?
Well, not really.
We think it boils down to a few things.
- Computers and algorithms are dispassionate, executing trades regardless of the larger world. Numbers don’t get nervous; people do.
- Markets don’t always react to short-term ugliness. Instead, they reflect expectations and the realities of where we are in the economic cycle, the strength and sustainability of corporate earnings, plus a healthy dose of investor psychology.
- With elections officially at an end, political uncertainty has dissipated.
Overall, we think investors are looking past the immediate future and hoping that vaccines, increased economic stimulus, and economic growth paint a positive picture of the future.
The Democrats control the White House and Congress. What does that mean for investors?
If you’re like many people, you might think that your party in power is good for markets and your party out of power is bad.
That makes for a stressful experience every four years, right?
Fortunately, that’s not the case at all. Markets are pretty rational concerning politics and policy.
While businesses and investors generally dislike increased taxes and corporate regulation, the Democrats hold such slim majorities in the House and Senate that it limits their ability to pass many big policy changes. (We will be watching the tax situation closely and will let you know if any changes will affect you or your retirement goals).
Also, the Democrats’ immediate agenda is very likely to be focused on fighting the pandemic, distributing hundreds of millions of vaccines, and passing more stimulus aid, all of which should support stock prices.
Does that mean markets will continue to rally?
No guarantees, unfortunately. With all the frothy market activity and rosy expectations about the future, bad news could knock stocks down a peg or two.
A correction is definitely possible, and we think certain sectors are in a bubble. Call us old-fashioned, but we actually prefer to own stocks that make a profit.
The bottom line is we should all expect to see more volatility until more of the country opens back up.
Well, Michael, what comes next?
I think we’re all hoping that the vicious, divisive politics will come to an end after the inauguration, and the politicians can get back to work getting us through the pandemic.
I’m optimistic that the light at the end of the tunnel is getting closer, and we can start going back to normal. Some of you reading this have already been vaccinated. Others will be in the coming weeks and months. This means more businesses will resume normal operations and we will start to get back to our Pre-COVID lifestyles of dining out and travelling.
I’m proud of what scientists and medical professionals have been able to accomplish in such a short amount of time. As I predicted earlier during this pandemic, America would be the country that cured COVID-19, and we have.
I’m grateful for the folks around me including my family, staff, and clients.
I continue to be hopeful about the future. There are a lot of great things that happen in this country every day. Sometimes we all need to turn off the TV and the internet and look at the people and places we see all the time to realize that.
Here’s hoping to a cloudy day and an early spring.
Thanks again for your support and trust.