Quarterly Market Outlook

By January 14, 2021Quarterly Update

QUARTERLY MARKET OUTLOOK

Greg Carr, Jan 12, 2021

Quote for the Day:  “Celebrate endings—for they precede new beginnings.” —Jonathan Lockwood Huie

2020 Review: It was the best of times, it was the worst of times…
What a year. A global pandemic, an economic shock and struggle like we’ve never before seen, and an election year with social unrest and political tensions that were off the chart. Still, after the swiftest decline in market history, the S&P500 large-cap stock market index finished the year with gains of 17.88%, far higher than traditional market metrics would expect. Growth stocks (+39%) far outpaced value stocks (+3%), demonstrating again the importance of diversification. Small Caps slightly outpaced large caps for the first year in many.

Economic Outlook: Slow Recovery Continues
Despite the stock market’s meteoric rise, economists note that the economic engine is still struggling as it strives to recover. The Conference Board’s Leading Economic Index® (LEI) rose only slightly in its most recent report, noting, “the pace of improvement has been decelerating in recent months, suggesting a significant moderation in growth as the US economy heads into 2021.” On the other hand, The most recent Survey of the National Association of Business Economists notes its panelists . “…have become more optimistic, on balance, with nearly one-third revising their outlook higher based on recent news of effective vaccines.”

The rollout of two highly effective vaccines mitigates the potential future risk of COVID-19, but we may have a dark winter before widespread distribution. Nevertheless, local governments seem more willing to find ways to keep business open and the federal government continues to tout its ability to provide stimulus if the economy begins to falter further.

Market Outlook & Summary: Elevated Markets Warrant Caution
The stock market is still well ahead of the economy according to traditional metrics. This elevated market, coupled with the economic risks noted above, creates the potential for a significant pullback in the coming weeks or months, perhaps 20% or more. Because of this, it is wise for investors to remain cautious until markets fall back to more reasonable levels or the economy catches up to market valuations.

Markets can continue to rise despite a weak economy, but for most investors, especially those in or near retirement, it is better to err on the side of caution rather than take on too much risk. Market volatility and recessions are a natural part of the economic and market cycle. If you have a retirement plan and a managed/advisory portfolio (CFE acct prefix) with us, it has been designed with this in mind. But If you are concerned about market volatility or are in or near retirement and have not met with us in the past year, now is the time to do a thorough review of your plan, risk tolerance, and portfolio strategy.

Please call us if you have questions about your investments or would like to discuss this article.

God bless, stay safe, be kind to one another,

Greg