Changes in 2021
What’s on the horizon as we head into 2021? The big news is the Democrats won both Georgia Senate races. This will result in a 50/50 Democratic/Republican breakdown in the Senate; Vice President Elect Harris will serve as the tie breaker, effectively giving Democrats the majority in this body.
This will make it easier for the incoming administration to implement its plans for fiscal policy, though the small advantage means that doing so will still be tricky. Spending most likely will rise over the level that would have existed with Republican leading the Senate, while certain tax rates, including corporate profits and high earning individuals, will likely rise as well, though the latter isn’t a certainty.
In the short run, the added jolt of the government spending will likely outweigh the tax hikes, and the economy will be a little stronger than it otherwise would have been. This is probably why much of the stock market, but especially the more economically cyclical parts, leaped upward in early January.
We intend to write more about the potential impacts of the incoming administration in coming issues. In the meantime, remember that changes in the partisan makeup in Washington have rarely turned out to be a good reason to sell or buy stocks wholesale! While some adjustments in one’s portfolio could make sense as a result of the election, getting all out of equities or all in, for that matter most definitely would not, at least in our opinion.
There are several reasons to be optimistic about the World Equity Markets moving forward. Just to name a few, “Don’t fight the Fed.” The Federal Reserve continues to be very accommodative for the U.S. economy leaving short-term interest rates low and looking to allow inflation to rise higher then in the recent past. Another positive is the COVID-19 vaccines are becoming more available and are starting to be distributed. COVID numbers have spiked over the last few months and don’t show any signs of slowing. Treatment for this disease will be needed for the economy and the markets to continue to improve.
On the negative front, stock valuations are quite high due to the two great years in a row (2019-2020). Also, 2020 earnings were poor due to COVID making stocks currently quite expensive compared to earnings.