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Navigating a New Year - December Market Update

Navigating a New Year - December Market Update

January 01, 2021
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Should you have any questions regarding these notes, please do not hesitate to contact Kevin at (678) 401-6102.

Executive Summary

  • As the committee met today, news broke that Congress had finally agreed on a new stimulus package of approximately $900 billion, including enhanced unemployment benefits, small business support, and direct payments to individuals. 

  • Vaccines are being shipped by two different companies to start giving frontline workers and at-risk individuals immunization shots. As more of the population becomes vaccinated, we hope that life in the United States returns to some sense of normalcy.

  • The Federal Reserve Bank has pledged to keep interest rates low. This should support economic activity and corporate profits.

  • On the political front, all eyes continue to watch the early January Senate races in Georgia, which will determine the balance of power in Washington DC over the next two years.

The Horizon Advisor Network Investylitics Committee met on the afternoon of Monday, December 21st, the same day that Congress finally agreed to pass an additional $900B stimulus package. 

 

The impact of the recent stimulus package

The stimulus package is expected to include enhanced federal unemployment benefits of $300 per week, stimulus checks of $600 per person, and additional funding for Paycheck Protection Plan (PPP) loans to support small businesses.  There are a number of other spending items and support mechanisms in the bill, which should act as a fiscal stimulus bridge for the economy to get to the other side of the coronavirus pandemic. 

All of this comes in addition to several other events giving help and hope to the economic recovery.  This includes two different pharmaceutical companies getting approval to rollout their COVID-19 vaccines.  As more and more of the population becomes vaccinated, the impact of the virus should wane over the next four to six months, allowing more normal economic activity to resume. 

In addition to this, the Federal Reserve Bank has pledged to keep interest rates low for several years to support economic activity.  A recent report shows that lower borrowing costs could add as much as 3-4% to corporate profits in the next calendar year. From a historical basis, stocks follow corporate earnings, which are expected to rebound significantly in 2021. This is especially true as we view them on a year over year basis with 2020 earnings that were depressed by the coronavirus induced recession.

  

What will the Georgia election determine?

Additionally, as the uncertainty of the recent elections moves to the rearview mirror, and as President Elect Biden appoints more cabinet members, there seems to be more clarity on the priorities of the new administration.  Of course, all eyes continue to be on the upcoming Georgia Senate races, which will ultimately determine the balance of power in the US government.  If Republicans hold on to at least one of the two Senate seats, it will be the first time that a Democratic President has been elected without the electorate also giving them control of both the House and the Senate since 1884. Regardless of the outcome, there will be very narrow margins in both houses. Hopefully, this means that people will have to work together across the aisle to accomplish meaningful initiatives for the benefit of the American people.

 

Our monthly performance review

Against this backdrop, the Investment Committee is happy to report that the model portfolios tracked by the committee have continued to outperform their risk adjusted benchmarks over the last one, three, and five years. We are only making changes to one of our small account models, at the present time. This will provide more international diversification to the portfolio, as we believe that between lower valuations overseas, more rapidly reopening economies in Southeast Asia, and the potential for a continued falling dollar would be supportive of these strategies.

From a technical standpoint, the markets are sitting near all-time highs, and seem to be coming up against some near-term resistance. We believe that any pullbacks will be muted by both fiscal and monetary support, and hope surrounding the vaccines rolling out. At this point in time, any pullbacks should be viewed as buying opportunities, as we believe that the overall outlook remains constructive for risk assets in the near term.

 

Final Takeaway

What a year it has been!

If you were reviewing your portfolio and financial plans with your advisor last December, and they told you, “Over the next 12 months, we will experience a global viral pandemic, a stock market drop of more than 30%, economic shutdowns and government mandated quarantines, social unrest and mass protests, and a bitter partisan divisive election. But don’t worry, your accounts will perform well, and actually will be higher by the time we review them next year.”, you likely would not have believed it, and probably neither would your advisor…and yet, here we are!

The Investylitics Committee is happy to have been here to provide advice, guidance, and confidence as we walked together through a year that we will all remember and talk about for years to come.

 

Should you have any questions regarding these notes, please do not hesitate to contact Kevin at (678) 401-6102. 

*Past performance does not guarantee future results.

*Investments in securities do not offer a fix rate of return. Principal, yield and/or share price will fluctuate with changes in market conditions and, when sold or redeemed, you may receive more or less than originally invested. No System or financial planning strategy can guarantee future results.

Members of the Horizon Advisor Network Investment Committee

  • Jesse Hurst- Impel Wealth Management
  • Clint Gautreau- Horizon Financial Group
  • Brian Toma- Freeman Heyne Toma Financial Advisors
  • Kevin Myers- ATL Global Advisors
  • Nate Ollish- Impel Wealth Management
  • Mike Hackler- Horizon Financial Group
  • Joy Schlie- Freeman Heyne Toma Financial Advisors