utlook?
The Georgia Senate runoff races resulted in the Democrats taking control of the Senate. This may allow for more available recovery stimulus funds. Taxes may also increase, posing a possible headwind but given the narrow Democratic majority, we do not forecast aggressive tax hikes. Likewise, central banks across the world have been more aggressive compared to 2008. In December 2020, the European Central Bank announced a $600 billion increase to its bond purchase program, and here in the U.S., the Federal Reserve continues to signal it will not raise interest rates through 2023. The impressive bounce-back of global equity markets since the March 23, 2020 low is one of the strongest on record. But that does not preclude additional gains. Since 1960, equity rallies following a 25 percent or more stock market decline have typically continued into a second year. These periods were subject to corrections of almost 10 percent on average, reminding investors that volatility is normal. Key lessons from 2020 for long-term investing success that remain relevant today include staying invested and rebalancing investment portfolios during periods of vol- atility, and maintaining diversification. While technology and stay-at-home beneficiaries led the stock rebound, November witnessed a notable rotation to more cyclical (economically sensitive) sectors, such as financials and energy and small-cap stocks. Such rotations are almost impossible to time and reiterate the need to maintain diversification. Stock market valuations are expensive
relative to history but need to be viewed in the context of low-interest rates. The 10-year Treasury yield is near 1 percent (as of 2/5/21), which fails to compensate for inflation, and short-term interest rates are likely to remain low through 2023. We continue to find stocks attractive relative to bonds and believe a diversified investment portfolio remains a good way to grow capital over time.
STOCK MARKET RALLIES FOLLOWING DECLINE OF 25% OR MORE
90%
80%
1st Year Return 2nd Year Return
70%
60%
50%
40%
30%
20%
10%
0%
Note: 3/23/20 data through 12/31/2020. Source: S&P.
MARKET INSIGHTS
Anthony Valeri, Investment Management Director for Wealth and Fiduciary Services, is a Chartered Financial Analyst who works with our clients to help them understand complex financial strategies and market dynamics. He has more than 25 years of experience in wealth management and financial services and is regularly quoted by large media organizations.
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*See page 29 for important disclosures.
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