Market Commentary: January 2021
Market Commentary: January 2021
For obvious reasons, I waited until after January 20th to finish this commentary, and I am glad that I did. Listening to the inaugural poem was not only inspiring, but it also rhymed with my theme this quarter. The poem had a nice balance between looking back and looking ahead. However, unlike the young poet laureate’s prose, the balance should never be equal; the future is always more important. We must look back to learn from history but pressing on toward the future is more important.
Markets on the other hand, take that forward looking approach to the extreme. They always look ahead, never back. Even the present moment is disregarded. This was on full display in the last two weeks. While the unimaginable was happening with our Capitol occupied by protestors and later with Washington D.C. in military lockdown for the inauguration, the world stock markets completely ignored the drama. Why was that? Simply put, markets set their prices based on expectations of future values and cash flows, not yesterday’s news or even the present circumstances. Therefore, as investors we too must look ahead not backward. As usual, before we do that, let us review the figures for the quarter.
In this contrasting year where we had 14.7% unemployment and a recession on Main Street, global stock markets rebounded from the initial COVID-19 shock and soared the rest of the year, looking well past the pandemic that tragically continues to take so many lives. As another example of the dichotomy of this year, in the last 50 years, both the lowest (3.5%) and the highest (14.7%) U.S. unemployment rates occurred in 2020. Stocks of every flavor saw double-digit gains (also found on page 2 of the Quarterly Market Review). Emerging Markets finished as the winner for the year with International Developed stocks a reasonably distant second. This is the first time in almost a decade where international stocks outpaced U.S. stocks. [April and November were two of the best three months the S&P 500 had over the last 30 years!] Again, both U.S. and Global Bonds provided a small but stable return for the quarter.
In the year ahead, we expect interest rates will remain low, reconciliation will be the dominant political theme, and monetary and fiscal policy will continue to be major benefactors to the global economy. Here at home, expecting the passage of another massive relief package, unemployment will start to come down. More importantly, as the COVID-19 vaccine slowly makes its way into our communities, positive signs of inflation have already started to pick up ahead of businesses reopening and jobs returning.
But can this stock market optimism last? No. We will see difficult days and stock markets with steep declines - double-digit gains will not last. With China’s regional aggression, Russia’s efforts to destabilize the West, Iran’s nuclear ambitions, and our own numerous domestic challenges, the road ahead will be very difficult. Even with all the unpredictable events that have occurred in the last year, and certainly more to come, we are well-versed in what to expect. This run of optimism will run out as well – and then restart again.
For those who lost loved ones and friends, a strong stock market is no consolation. At the end of the day, unless those around you are safe and healthy, little else matters. For the financial life advice and responsibility you have entrusted to us, we will be cautious and deliberate to achieve the security and significance you want and need. By thinking creatively and being prepared, together we will come out better than ever.
We wish for you a year in which your hopes become real. And we are truly eager to see many of you in person again as soon as we can. We appreciate your flexibility in having phone calls and virtual meetings while awaiting more normal times.
As always, we are incredibly thankful for your trust. May you and your family enjoy a happy and healthy 2021.
Two quotes from Henry David Thoreau to help frame our new year:
“Never look back unless you are planning to go that way.
“Goodness is the only investment that never fails.” - Henry David Thoreau
Carl Amos Johnson, MBA, CFP®, AIF®
January 22, 2021