U.S. stocks found their way to new highs this week, with broad-based positive returns. The market highs come just as COVID new cases and deaths in the U.S. are reaching new records of their own. We provide some perspective on this apparent dichotomy.
Despite the horrendous COVID trends, which will worsen before they get better, there is some rationale for the market’s recent run.
- Vaccine news has been positive, raising the likelihood that the U.S. economy will bounce back next year as consumer and employee mobility are returned.
- The Federal Reserve policy has been extraordinarily accommodative. While individuals may be suffering, companies are enjoying an environment of “easy money.” As the saying goes… “don’t fight the Fed.”
- Bonds do not offer an attractive alternative. With bond yields so low, investors are forced to the stock market to seek returns and income.
- It is also worth remembering that the stock market is forward-looking. Investors care less about what is happening right now and more about what they expect to happen in the coming years.
So should you invest in a stock market that is at an all-time high? Over the past 100 years, the U.S. stock market has offered nearly double-digit annual returns to investors. In other words, it is normal for it to go up, and therefore also normal for the market to be at or near an all-time high. You cannot avoid it!
We are not able to predict the future. It is possible the stock market could fall in the near-term, but it is also possible the market will continue to charge forward. Absent a crystal ball, these market moves are out of our control as investors. The solution? Focus on what you can control, which is simply ensuring you always stay invested at a level of risk that is appropriate for you.
“Absent a crystal ball, market moves are out of our control as investors. The solution? Focus on what you can control, which is simply ensuring you always stay invested at a level of risk that is appropriate for you.”
– Doug Walters, CFA, Chief Investment Officer
Headlines This Week
- The Senate Majority Leader said discussions of a $908B bipartisan coronavirus relief package (proposed by a group of Senators) are moving in the right direction.
- The deal still has some big sticking points to figure out, like funding for state and local governments and COVID liability protections for businesses.
- The importance of a deal is becoming more evident as COVID cases, and deaths continue to rise. Daily deaths hit the highest levels of the pandemic Thursday at 2,879, with the seven-day average breaking 1,800.
- According to Reuters, Bank of America reported that global equities saw inflows of a record $115B in the last four weeks, while fixed income saw outflows.
- The economic leading indicators are pointing towards recovery, which may be a reason why many investors are choosing equity over fixed income.
- The United Kingdom (UK) and European Union (EU) have yet to strike a deal, and time is running out.
- Both sides must agree on some form of a deal before December 31st, or the worst possible outcome of this divorce, a “no-deal Brexit,” will occur.
- With no deal, the UK and EU will have to reintroduce tariffs on trade using World Trade Organization guidelines.
The Week Ahead
Stimulus, Brexit, and Vaccine, oh my!
- We ended this week with progress on a stimulus plan. Will we have a bill passed next week?
- Brexit is nearing and a deal on trade and other fine points of the divorce is facing a ticking clock. Next week will be critical.
- Will vaccine shipments and distribution start? There is a decision expected from the Federal Food & Drug Administration on Friday, which could kick off the distribution effort.
Inflation reading from the Consumer Price Index (CPI) and Producer Price Index (PPI) are the marquee releases.
- Very small increases in inflation for November are expected with PPI expected to increase 0.4% year-over-year and the CPI 1.3%.
- MBA Mortgage Applications, NFIB Business Optimism Index, Consumer Credit Change, University of Michigan Consumer Sentiment, and the weekly employment report may attract some attention.
European Council and Euro Summit are next week.
- European leaders will meet in Brussels to discuss, COVID-19, climate change, trade, security, and external affairs.
- The Euro Summit will focus on the banking union and the capital market union.
Both The European Central Bank and The Bank of Canada have a rate decision next week.
- No change in rates is expected from either bank, but commentary on their respective economies will be of interest to investors.
Gross Domestic Product (GDP) for the 3rd Quarter will be released for Japan, Great Britain, and the European Union.
- These are not new results these are just revisions of already reported results, and no major changes are expected.
Founded in 1979, Strategic is a leading investment and wealth management firm managing and advising on client assets over $1.6 billion.Overview
Strategic Financial Services, Inc. is a SEC-registered investment advisor. The term “registered” does not imply a certain level of skill or training. “Registered” means the company has filed the necessary documentation to maintain registration as an investment advisor with the Securities and Exchange Commission.
The information contained on this site is for informational purposes and should not be considered investment advice or a recommendation of any particular security, strategy or investment product. Every client situation is different. Strategic manages customized portfolios that seek to properly reflect the particular risk and return objectives of each individual client. The discussion of any investments is for illustrative purposes only and there is no assurance that the adviser will make any investments with the same or similar characteristics as any investments presented. The investments identified and described do not represent all of the investments purchased or sold for client accounts. Any representative investments discussed were selected based on a number of factors including recent company news or earnings release. The reader should not assume that an investment identified was or will be profitable. All investments contain risk and may lose value. There is no assurance that any investments identified will remain in client accounts at the time you receive this document.
Some of the material presented is based upon forward-looking statements, information and opinions, including descriptions of anticipated market changes and expectations of future activity. Strategic Financial Services believes that such statements, information, and opinions are based upon reasonable estimates and assumptions. However, forward-looking statements, information and opinions are inherently uncertain and actual events or results may differ materially from those reflected in the forward-looking statements. Therefore, undue reliance should not be placed on such forward-looking statements, information and opinions.
No content on this website is intended to provide tax or legal advice. You are advised to seek advice on these matters from separately retained professionals.
All index returns, unless otherwise noted, are presented as price returns and have been obtained from Bloomberg. Indices are unmanaged and cannot be purchased directly by investors.