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Phil D'Iorio / December 18, 2020

‘Tis The Season

The Holiday season is around the corner and it couldn’t happen at a better time. A little rest and relaxation are much needed after the crazy year we have all been through!

The year started off on a positive note with the global economy in acceleration mode and global stock markets performed well out of the gate. However, by late February COVID-19 headlines created a panic that caused the S&P 500 to fall by 34% over a one-month period. After the panic subsided, stocks surged with global equity markets rising by more than 60% from the March lows.

After an unprecedented year, we hope that 2021 will represent a return to normalcy or at least something more normal than 2020. Taking a trip, eating at a restaurant, and getting together with friends & family would be nice. A return of diplomacy may also be welcomed. With Joe Biden as President, the United States should see the return of a steadier hand in the White House with a more multi-lateral approach towards foreign policy.

As 2020 nears an end, investors face several crosscurrents. On the positive side, the US election has passed with a market-friendly outcome and COVID-19 vaccines are in the process of being distributed. This type of backdrop would typically be the all-clear signal investors need to shift out of defensive work-from-home beneficiaries and into more cyclical investments. However, major developed countries across the Northern Hemisphere are facing new record levels of COVID-19 infections. This has led to a new round of economic lockdowns. It also increases the risk that some companies might not make it to the other side of this pandemic. More stimulus would help so let’s hope that recent stimulus discussions are finalized sooner rather than later.

Looking ahead to 2021 there is a consensus view that the world will stage a strong recovery. Several economists are forecasting real GDP growth of 5.0% to 5.5% for the global economy. This would represent the fastest level of growth since the 1980’s. As long as the vaccines do their job and people are willing to take them, we believe that the consensus view is achievable. Under this scenario we would expect a continuation of the rotation towards more cyclical areas of the market and better returns from the laggards as COVID losers stage a recovery. If the consensus view materializes, it should be a good year for the stock market and it would feel rewarding given what everyone has been through in 2020.

This will be our last note of the year so thank you for reading.

Happy Holidays and I wish you a healthy and prosperous year in 2021!