This Holiday Season will likely go down for many of us as the most “interesting” we’ve ever seen. But, we hope you were still able to find a way to enjoy your family during these unusual times. Today I am writing as I wanted to give you an update on some recent changes we have made to your portfolios.
As we approach any year end, we typically review our portfolio positions and determine what changes should be made as we look forward. What should 2021 look like? With vaccines being delivered across the world, there is a feeling of optimism that things are going to get better. Some have predicted that by the end of March 50% of the US will be vaccinated and by the end of June all US citizens will have had an opportunity to be vaccinated. This will help. Other significant factors that we considered as we made our most recent changes include:
Market Tailwinds
- The availability of vaccines are a huge positive for the world economy.
- The dovish stance by central banks across the globe is expected to last for some time. In fact, Blackrock has stated they don’t expect rate hikes from the US Fed, Bank of England (BOE), and European Central Bank (ECB) until 2025.
- The recently passed $908 billion stimulus bill passed by congress and signed by President Trump this weekend will help the economy. This bill includes everything from new monies for the Paycheck Protection Program (PPP) to more unemployment insurance to additional stimulus checks. Note, that these additional stimulus programs have occurred across the globe not just in the US.
- The election is over, mostly. While the election in Georgia on January 5th will finalize the control of the senate, we have made big strides in knowing who is in charge in 2021. Less uncertainty is good!
- The economy has made progress. According to Blackrock, global GDP has made up about 75% of the significant drop that occurred in the first part of the year. While the pandemic-induced shutdowns are still inflicting an 8% drag on the economic growth as compared to pre-pandemic levels, it is a big improvement from the 20% drag they were at the beginning of the crisis.
- Unemployment has improved to 6.7% from a pandemic peak of 14.4%.
- Further stimulus is still likely on its way as we move into 2021
- A split congress has typically supported a stronger S&P 500 return. Again, according to Blackrock, the split congress S&P return since 1950 has averaged 17.2% while the democratic controlled congress was 10.7% and the republicans 13.4%.
Market Headwinds
- The fight with the virus is not over. We have many challenges that we face. Over the first couple weeks for example of the vaccine being distributed, many delivery difficulties have been noticed.
- With so much global stimulus, inflation can enter the picture. Significant inflation could stall or even reverse global growth.
- Trade wars are not behind us. China continues to poke at anyone that gets in their way. The US – China rivalry is not over. This relationship will continue to create uncertainty which is not a positive for the market.
- Geopolitical challenges generally appear to be a more permanent problem percolating behind the scenes. The most recently discovered cyber attack is an example of an unknown that has the potential to derail the economy.
- Should the democrats take control of the senate in the runoff January 5th, wall street will likely not like the one sided controlled congress. You could see some volatility in stock prices if that was to occur.
What have we done to prepare for the most likely outcomes? As things “normalize” there are a lot of areas in the economy and stock market that have lagged significantly. Most of them being areas that have higher sensitivity to shutdowns and impact of the virus. So, we have rotated some of your technology positions that we made significant gains on into more opportunistic options. This includes more core equity positions as well as developing market positions. The core equity selected holding has companies that will benefit from the continued shift in consumer trends yet have solid balance sheets to deal with the continued market uncertainties. Even after this adjustment clients will still be overweighted in the tech sector as we see this area continuing to benefit from future economic conditions and consumer preferences. Next, we also took a maturing bond position and moved that to an income producing allocation option. With interest rates in the short term at least looking to face upward pressure from stimulus and continued optimism from the vaccine, we felt it would be better to find an investment option that creates the income clients need but does so with both fixed income and equity opportunities.
So, here’s to a more optimistic year ahead in 2021 for your health, your family and your investments. We are here to answer your questions and concerns, so don’t hesitate to reach out. Happy Holidays!
Cheers,
Jim
James W. Ronn, CFP®
CEO
Greater Midwest Financial Group, LLC.
3222 Rice Street
St. Paul, MN 55126-3047
Phone: (651) 490-9790 Fax: (651) 490-9788
james.ronn@greater-midwest.com
www.greater-midwest.com
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Greater Midwest Financial Group, LLC is not affiliated with Kestra IS or Kestra AS.
Investor Disclosures: https://bit.ly/KF-Disclosures
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