Market Update: Nov 19 2020
- Potential Upcoming Risks
Here is a recap of our live Q&A session held on 11/19/20 presented by Joe Randazzo JD, CFP® from FNA Wealth Management and Dave Stone CPA, CFP® from Tartan Wealth Management.
Details for our next session, 12/03/20, can be found here. Please note the time change to 4:00 pm.
Can you comment on why the market continues to rally with COVID cases still on the rise and curfews and other restrictions starting to be imposed?
- Two things we’ve mentioned to watch over the course of these calls the last many months are a vaccine and corporate earnings. We’ve all seen the progress made with vaccines over the last couple of weeks and that too has added a spark. In addition, and for the most part, corporate earnings have come in as or better than expected and that has fueled some of the market.
- That said, I think it is important to note that the performance in the market the last couple of weeks has been quite different than the last six months. Specifically, we have started to see some of the value stocks in the market outpace growth names. While growth, especially technology companies have fueled the recovery since March, many value stocks have lagged. You have heard us say that value tends to be driven more by demand than technology stocks and, with a vaccine on the horizon, we believe the market is betting that demand will continue to increase in the coming year. This may continue to benefit areas like energy, travel and leisure, industrials
With the progress made on the vaccine, what other risks do you now see facing the market next year?
- Change in administration always presents challenges in the short term. While we believe it is unlikely to see changes in the tax code anytime soon, it is no secret that President elect Biden would have changes made if he could.
- Corporate earnings will continue to be in focus next year. Many companies have refrained from offering guidance for 2021 due to all of the current uncertainty surrounding Covid. That said, Wall St has its own way of creating estimates and expectations and we believe corporate America will need to continue meeting those expectations for the markets to hold up.
- Continued jobs creation will also be necessary. While we have come a very long way with unemployment numbers since the depths of March and April, we believe the market has priced in ongoing improvement of jobs numbers
- While we do not expect inflation to be a major issue in 2021, interest rates and inflation will likely also be in focus. Treasury yields increased significantly right after the election, but seem to have leveled off since then. Rising interest rates in the early stages of economic recovery next year could cause some challenges.
The views and opinions expressed herein are those of the author(s) noted and may or may not represent the views of Beacon Financial Advisory or Lincoln Investment. The material presented is provided for informational purposes only. Nothing contained herein should be construed as a recommendation to buy or sell any securities. Past performance is no guarantee of future results. No person or system can predict the market. All investments are subject to risk, including the risk of principal loss.
Growth investments focus on stocks of companies whose earnings/profitability are accelerating in the short term or have grown consistently over the long term. Such investments may provide minimal dividends which could otherwise cushion stock prices in a market decline. Stock value may rise and fall significantly based, in part, on investors’ perceptions of the company, rather than on fundamental analysis of the stocks. Value investments focus on stocks of income-producing companies whose price is low relative to one or more valuation factors, such as earnings or book value. Such investments are subject to risks that their intrinsic values may never be realized by the market, or such stock may turn out not to have been undervalued. Investors should carefully consider the additional risks involved in both growth and value investments.
Inflation is the rise in the prices of goods and services, as happens when spending increases relative to the supply of goods on the market. Moderate inflation is a common result of economic growth. Hyperinflation, with prices rising at 100% a year or more, causes people to lose confidence in the currency and put their assets in hard assets like real estate or gold, which usually retain their value in inflationary times.