We are in the final inning of 2020 so where do things stand and what can we expect going into 2021? The first week of November markets surged to make up for the decline at the end of October. It appears there is likely to be some balance in Washington and the market likes checks and balances. But perhaps a bigger matter on investors’ minds is COVID and its impact on the economy. News came out early in the month of two COVID vaccines that are ready to be released. The market looks ahead six to nine months and right now it appears to be betting this will get us back to normal by mid-year 2021. I hope it is right about that.
Also, the Federal Reserve members met the first week of November and committed to maintaining the zero interest rate policy into 2023. That meeting was pretty much ignored in the news but does impact the market. Long term rates may rise in 2021, but the expectation is that rates will still be historically low.
November was earnings season and corporate profits were reported. The news was overwhelmingly positive as 85% of companies reporting for the 3rd Quarter of 2020 beat analysts’ expectations. We must add that expectations were moderate given the circumstances, but still, beating expectations is good for the market.
The stock market continued its upward momentum putting in new highs for several indexes in November. That continued to affirm the strong demand by investors. What began several months ago as a rather narrow rally focusing on technology stocks now includes broad participation. Technology, communications and consumer discretionary still look good, and materials, industrials and health care are joining them. The weakest sectors are the interest rate sensitive utilities and real estate.
This rally has expanded relative to market cap. Small and mid-cap stocks which have lagged for the last few years have now resumed their place of leadership. After a decline in October, large cap stocks regained their September highs in November. Seeing stocks across all cap sizes in a positive trend is bullish.
And finally, the international market, which has lagged for three years, is improving. More countries are putting in new highs as breadth expands not only at home but globally.
After a very rough start in the first quarter, if the momentum we have going now continues for the last few weeks of the year, 2020 should end on a positive note. It also bodes well for 2021.
In the midst of a strong market like the one we are experiencing investors need to be aware that a correction of 5% to 10% could very well happen. There are still uncertainties around COVID and the Georgia Senate races, all of which impact the markets. It would be normal for the market to take a breather, so vigilance is always important.
Written by Connie C. Guelich, CFP, AEP, CLU, ChFC. This represents our views at the time of this writing, and it is subject to change. It is not intended to be personal investment advice. If you would like to discuss your own account, please don’t hesitate to call us. We are here to help and welcome your call.