Market Update Q4 2020

Thoughts on a “post” Covid-19 world …

This year has been marked with many unknowns: nationwide unrest due to the health concerns of COVID-19, global economic shutdowns caused by quarantining populations around the world to slow the spread of COVID-19, record amounts of debt created to provide economic stimulus to the global economy, low interest rates, volatile markets, and an uncertain election outcome. The 4th quarter has brought some stability in the outcomes of these concerns that have impacted the markets in a positive way. As I write this commentary, the markets are reaching new market high, rebounding from late October’s sell offs.

Is there hope arising out of the Corona ashes? The world is breathing a sigh of relief as 2 vaccines have come to market, with a third on the way. We are hopeful that populations around the world who choose to be vaccinated will come out of isolation, corporations and businesses will open their doors, and the flood gates of economic growth would rebound to meet the need for goods and services created by pent up demand. The result would be continued growth in the markets as investors seek a place to grow their wealth in this low interest rate environment. The first of what now looks like multiple stimulus packages was passed and may be the kick start needed by the economy to spur a sustainable US economic recovery.

Historically low interest rates have spurred continued growth in the housing market with home values reaching 2006 levels. Currently home inventories are low and there is great demand by families moving to desired locations around the country. We have seen a lot of New York and New Jersey license plates driving around South Florida recently. We believe the rise in housing prices is sustainable only if current owners can pay their mortgages and fend off having to sell their homes to avoid foreclosure due to business closures, layoffs, and downsizing caused by COVID–19 economic shutdowns. An influx of homes for sale into the market could cause prices to drop and lead to a correction in the housing market.

Overseas a BREXIT deal has been reached by Great Britain and its Eurozone counter parts.  Even though the deal has been agreed, it still needs to be made law. For that to happen it must be looked at and approved by both the European and UK parliaments. If made into law, rules and regulations regarding trade would be in place for these countries to conduct business transactions, and trade goods and services with defined policies in place. This would be good for the free markets of Europe. In 2016 when Great Britain passed a referendum to leave the Eurozone, markets shuttered because of the uncertainty of such an event. Fast forward to 2020. This deal, if made into law, brings a level of stability to the global markets.   

Election outcomes have not been finalized as we anticipate the January 5th Georgia State runoff elections and the January 6th Congressional Count of Electoral votes. There is much heated debate as to what the likely outcomes will be. We believe that a defined path forward with checks and balances is needed to provide stability to the future market environment.

There are still lingering fundamental economic impacts from COVID-19, and the possibility of recessionary pressures that could halt the economic rebound. We are hopeful for a quick return to the pre-crisis economy. This may be possible if vaccines work as tested, economies around the globe reopen, monetary stimulus kick starts global economies, the BREXIT deal is made into law, and there are checks and balances that create government stability.

For these reasons, we continue to remain cautious in our future market outlook headed into 2021. We believe it is important for us to discuss your risk tolerance and invest accordingly. If you have any questions about how your portfolio is positioned, or how your personal financial circumstances could be impacted by market conditions, please do not hesitate to give me a call.

Sincerely,

Scott Miller

Partner