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December - Market Update

Winter Break is right around the corner and hopefully you will take the time to relax, recharge, and share holiday traditions with family and friends.

Economic Data 
After two months of declines, markets rallied in November. The Dow posted its biggest monthly gain since 1987 while the S&P 500 was up the most since April when it rallied nearly 13% coming out of the depths of the Coronavirus crisis.

Are the markets a bit too buoyant in the near term?

Clearly it appears risks are rising. Stock valuations are expensive by most metrics and historic Wall Street standards. Many institutional investors would even argue that a correction (a decline of 10% or more) or two would be welcome at these levels. In addition, there will be two fiscal cliffs hitting the unemployed in the next couple of months. First, in the absence of another fiscal package, the 20 million Americans currently receiving some form of jobless benefits could begin exhausting their household savings before year-end. Second, 7-12 million unemployed will be further squeezed if the PUA (Pandemic Unemployment Assistance) and PEUC (Pandemic Emergency Unemployment Compensation) programs are allowed to expire the week of December 28th.

That said, why are the markets so confident the economy will be firing on all cylinders post-COVID?

What’s Next?
When it comes to fiscal stimulus negotiations, there is hope. Fed Chairman Powell has testified before Congress and has made it clear that Congress must step up to the plate to bridge the gap for those individuals and businesses economically impacted by COVID-19.

The very near-term uncertainty is the Georgia Senate run-off on January 5, 2021. The markets are still expecting Republicans to take at least one of the Senate seats to maintain a majority and have balance of powers between Congress and 1600 Pennsylvania Ave.

Where Do We Go From Here?
The markets, which are (generally) efficient discounting mechanisms, are looking past the next few months, and have turned their focus to a global, synchronized economic boom. Seemingly ignored are the surging COVID hospitalizations (and deaths) and the resulting short-term economic impairment on businesses, small and large.

Instead the market (and investors) are focused on the following:

  1. Positive vaccine news, likely rolling out by the end of this month from leading pharmaceutical giants Pfizer, Moderna and AstraZeneca. By Spring (or even earlier), people who want a vaccine should be able to get one
  2. Low interest rates, massive liquidity and “FOMO”
  3. The savings rate in the US is also near a record high which translates into pent-up demand which will turn into higher consumption when the pandemic restrictions are lifted and consumer health confidence is restored 
In addition, CFOs of corporations have been taking advantage of the cheap cost of money and raising cash by locking in low, long-term debt service. Even companies whose businesses are suffering from the pandemic like cruise lines and airlines have raised tremendous sums of cash at low rates for future use. These funds, along with the Trillions of dollars contributed by the Federal Reserve and Federal government, will ultimately provide fuel for capital spending and stock buyback. Sound familiar? It should, as it’s almost the same playbook that followed the “Great Recession” of 2008-2009…only this time, on steroids.

Once again, the resiliency of the capital markets and the massive power the Fed wields to aid our country in “distressed” economic times is not to be underestimated. Of course, there are expected bumps in the road, just like life, and, over time, the investment bumps for the investor with a long-term perspective turn out to be pebbles in the road, and not the deep potholes that cause a head-on collision.

With investing, it’s time in the market, rather than timing the market’s inevitable swings, that tends to heal the short-term wounds inflicted by market dislocation. 2020 best exemplified this investment strategy and furthers our firm’s investment philosophy with how we manage our clients’ entrusted portfolios in relation to achieving their financial goals and plans.

We wish all of you peaceful, rewarding and enjoyable holidays. May 2021 bring us all the opportunity to regain some of our respective versions of normalcy and freedom.

As always, if you have any questions or would like to discuss your accounts or financial situation further, please call your advisor directly or email us at clientservices@benchmarkfinancial.info. Please visit our website at www.benchmarkfinancial.info  for more information on our planning services.


Sincerely,
Benchmark Financial


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