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Di Vincenzo: Adios 2020, MARKET OUTLOOK 2021 Fiduciary EDGE Advisors LLC  Thumbnail

Di Vincenzo: Adios 2020, MARKET OUTLOOK 2021 Fiduciary EDGE Advisors LLC

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Description automatically generatedlook 2021

Jayne W. Di Vincenzo AIF ®, CEP ®, President

After what we have been through in 2020 I, like most everyone, believe 2021 has to be better.   

I am optimistic about 2021-2022 for several reasons, the most obvious one being the potential for controlling the Pandemic and wide-spread availability of the vaccination against the Coronavirus.  I know well that we should, and do, continue to expect the unexpected—black swan events will happen and investment strategies should not change with the wind (i.e., the news of the day).  A sound investment strategy should plan for volatility and be built to take some risk, but not more than necessary, and we use choppy markets as opportunities to rebalance and bargain shop.    

Lately I have been asked,  "how it is that "markets are up" when the economy is in shambles?"  First, markets and indexes often ignore the present economic circumstances, and look ahead toward future opportunities.  Stock prices tend to lead earnings, often by two or more quarters.   A lot has been, and will be written, about the two economies we are experiencing: the world of the haves (own stocks, have jobs), and have-nots (little to no savings, higher job losses).  There is no simple solution to evening the playing field, as any reader knows, and with years of hindsight we will learn more about what policies and strategies were wasteful, and which were helpful, during these unprecedented times. 

Industries and workers impacted significantly by COVID are fairly obvious and include:  retail, restaurants, in-person service reliant businesses like ride-hailing, arts, entertainment, hotels, gambling, and airlines.  The industries that have been helped by low interest rates and homebound consumers include online shopping (#Amazon, #Paypal, #Etsy, #Alibaba), technology firms, online gaming, food delivery, internet conferencing, communications, residential real estate, home improvement, white-collar industries including accounting, financial services, engineering, and biotech.   

Secondly, my optimism also springs from the fact that consumers are resilient.  And with little opportunity to spend money on travel, entertainment, dining, luxuries, high end clothing and more for close to a year, those with jobs have padded their savings accounts.  As of April of 2020 we hit a record high 33.7% savings rate-- a shocker for US Consumers who are typically among the biggest spenders and lowest savers among industrialized countries in the world:  United States Personal Savings Rate

 

 


Actual

Previous

Highest

Lowest

Dates

Unit

Frequency



13.60

14.60

33.70

2.20

1959 - 2020

percent

Monthly

Seasonally Adjusted

United States Personal Savings Rate:  In the United States, Personal Saving Rate correspond to the ratio of personal income saved to personal net disposable income during a certain period of time.

I continually remind investors that most news events impact current prices and volatility, and it is wise not to use short term events or the news stories of the day to make long-term investment decisions.  As much as we would like to believe we can control and/or remove all portfolio volatility, it is an impossible ask.  Long-term investors actually benefit from volatility—without volatility stocks would be risk-less, and returns would be low, like those of Treasuries and certificates of deposit. 

Our unusual forked economy makes it especially difficult to predict how our recovery will evolve and is compounded by the additional uncertainty of which party will control the #USSenate and how quickly we can vaccinate and mitigate COVID-19 risk.  It is not a stretch to say that the outcome of the race in #Georgia will likely impact future economic stimulus winners and losers for years to come.

Expected beneficiaries of the evolving economy in 2021 assume that interest rates stay low, new spending is approved by the government on infrastructure and maintaining some financial support and benefits for those in the hardest hit industries, that inflation remains in check and again, that a COVID vaccine is widely distributed and the pandemic is curtailed.  Assuming this, pent-up consumer spending/demand will likely be unleashed, a potential big plus for 2021-2022.  

Our expected sector winners include:

  • Transportation
  • Technology, software, entertainment, infrastructure
  • Online stores with strong sales sites & marketing
  • Biotech
  • Renewable energy
  • Energy delivery
  • Residential Construction
  • Home goods
  • Home improvement
  • Travel
  • Entertainment

Expected winning asset classes

  • Small and Mid Cap Stocks
  • Value Stocks
  • Select Growth Stocks 
  • International, especially Europe
  • Fixed income: High yield corporate bonds, taxable municipals with secure revenue streams (AA, Aa and higher), Treasuries with intermediate to long duration 

Expected sector losers of new (and old) economic realities:  

  • Commercial real estate
  • Commercial equipment (copiers, supplies, furnishings)
  • Steel for non-residential construction
  • Mall-locked retailers
  • Food delivery providers
  • For-profit education
  • Fossil fuels

Anticipated asset class losers:  

  • Cash
  • Low rated/risky bonds (below BBB)
  • Emerging Markets
  • Overpriced growth stocks with shaky financials

This overview and assessment is not intended as specific investment advice and you should consult with your tax and financial advisor(s) before making changes to your investment strategy.   

---------------

Sources include:  The Economist, Fidelity Brokerage Services, Northern Trust, Kiplinger’s, Forbes Advisor, and The Wall Street Journal and John Hancock Investment Management and  https://tradingeconomics.com/united-states/personal-savings#:~:text=Personal%20Savings%20in%20the%20United,percent%20in%20July%20of%202005.

Jayne W. Di Vincenzo has been serving families and business owners with financial planning and investment services for over 22 years.  Jayne’s firm, Fidelity EDGE Advisors, LLC, is based in Savannah, GA and serves clients with investments and financial planning in states throughout the mid-Atlantic region.  

Securities offered through Registered Representatives of Cambridge Investment Research, Inc., a broker/dealer, member FINRA/SIPC. Advisory services offered through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Fiduciary Edge Advisors LLC and Cambridge are not affiliated.