We made it through election day, and there seems to be some clarity as to the result- at least in the Presidential race. Over the coming weeks, market participants will continue to process the implication of both the results of the elections as well as continued economic improvement. We remain focused on relevant economic data as well as investors’ long-term goals and short-term liquidity needs which inform how to manage risk on an ongoing basis.
We believe the recent market gains confirm that in investing, the economy is generally more important than politics. An election, or other political event or decision, can create a near-term pause because of differing opinions, but the recovery and growth of the economy heading into 2021 is of greater consequence to investors. The economy continues to improve as seen by the strong third quarter rebound in GDP growth. The current consensus estimate for calendar 2020 corporate earnings is -16% (an improvement from an estimated -21.5% a month ago) with 2021 earnings estimates at +23.2%. As we’ve pointed out, this implies that over the two-calendar year span, the economy is predicted to have grown 3.5% even through the pandemic. This highlights the importance of time horizon and perspective when implementing an investment portfolio strategy.
Recent developments regarding the efficacy of a potential COVID-19 vaccine has also driven markets higher, especially in sectors that may benefit from an accelerated economic recovery, such as energy, financials, and industrials. This could bode well for a diversified portfolio that is not solely focused or concentrated on technology-related growth.
The S&P 500 Index has recovered to an all-time high level as of this writing intra-day on November 9, 2020.
With clarity on the Presidential race, we can assess what a Biden Presidency means for the economy. Biden’s trade policy may be less protectionist than President Trump’s, which could be good for global trade. It also appears that one of president-elect Biden’s priorities is additional economic stimulus to aide in the economic recovery from the pandemic-induced recession which occurred earlier this year.
It has been a volatile year, and 2020 highlights the important distinction between uncertainty and risk. We cannot control outcomes in the world, but clarity of outcomes informs potential scenarios to plan for. We can, however, control the amount of risk we take. This means providing for spending needs and not over-investing (liquidity risk). This means staying diversified and not making focused bets (concentration risk). This means staying on a disciplined plan and not reacting to uncertainty (market timing risk). This also means that once these are addressed, staying focused on the long-term so as to stay the course and participate in either market advance or recovery (upside risk).
Our recommended course of action for investors is to ensure that portfolios are positioned with the appropriate amount of risk for their goals and risk tolerances. Consistent with our philosophy, we recommend quantifying the risk an investor should and can afford to take- regardless of short-term speculation- and invest accordingly in a disciplined-based and quality-focused portfolio to provide for desired growth and income over time. This may include adjustments as a result of changing goals and circumstances, or systematic rebalancing as a result of portfolios skewing of a target asset allocation due to recent market moves.
Stay the Course, but Know Your Course First
To learn more about these topics and our investment strategies, call us at 404-445-7885 or contact us here.
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