Quarterly Commentary: Fourth Quarter 2020

The pandemic and its cascading effect on our lives remained front and center as we closed 2020. The 4th quarter continued in the turbulent manner that marked the entire year. Specifically, we witnessed:

Financial markets overall ended 2020 with positive momentum due to a combination of sustained monetary support, optimism from the launching of vaccine programs, and some speculation by a segment of the investing population. The S&P faired relatively well throughout the year, mostly driven by a handful of COVID-proof companies.

Most notable for the 4th quarter was the outperformance of value stocks over growth, small caps over large, occurring against the backdrop of strong performance by international equities. By yearend, domestic small cap and emerging markets stocks had surpassed the S&P 500 for the year. Real estate (REITS) made up some ground from earlier in the year, but not enough to end 2020 with a positive return.  Bonds gained slightly in the quarter, and turned in a solid performance in 2020.

Further fueling markets was the $900 billion Covid Relief Bill signed on December 27, 2020, by President Trump. This comprehensive package was designed to put cash in the hands of those in need, while providing a host of other relief, such as:

The state of the union

On January 20,2021, Joe Biden and Kamala Harris were sworn in as the 46th President and Vice President of the United States under heavy military guard, and the unprecedented absence of the sitting President.

We enter 2021 with the Presidency, the Senate, and the House controlled by the Democrat party. As we transition to the Biden administration’s policy agenda, as well as its handling of the COVID-19 pandemic, we anticipate the market and the economy to respond in kind.

The Biden administration faces major challenges as the U.S. and the world try to manage our medical and financial health in this pandemic. While we remain in the throes of a second wave, we are gaining ground toward critical herd immunity resulting from more exposures and advanced vaccination programs. While the initial vaccine rollout has been slow almost everywhere, we are hopeful about meaningful traction in the foreseeable future.

The Biden administration wasted no time proposing an additional stimulus package, The American Rescue Plan, to provide additional relief as we work through the economic damage caused by the pandemic. This comprehensive package, if passed, would include:

It is clear by the sheer magnitude of these two programs that we have bipartisan concern and support in light of our present economic set of circumstances. But what exactly are those circumstances?  From a macroeconomic perspective, GDP is on the rise, unemployment rates are dropping, and the markets have mostly recovered from pandemic lows. 

Yet, there seems to be a growing gap between those who have survived, or even thrived, during the pandemic and those who have been severely impaired by it. The Fed, in an effort to mitigate this damage, has inadvertently (or maybe not) stoked Wall Street’s flames. This helped create new wealth for those who could partake, leaving those who couldn’t even further behind.

Time has been of the essence for those in need, so the Fed and the Treasury felt it necessary to use a blanket approach in relief efforts. These may lead to unintended consequences in the future. While deficit spending is not new, the Fed and the Treasury continue to demonstrate they will do what is necessary to see Main Street through this pandemic recession. Consider that 78% of all the money the Treasury has ever printed has taken place in the last 10 years with a staggering $6.6 trillion in fiscal 2020 alone!

For 2021, The World Bank is projecting a range in global growth from a plus 5% to an unspecified negative percentage, primarily based on progress with vaccinations and the medical community’s ability to modify them as the virus mutates. While we remain optimistic the recovery is at hand, it will most likely be asymmetric, and may take a number of years to fully manifest.

Lessons from the Pandemic

It is safe to say we share the sentiments of our clients, friends, and colleagues when we declare 2020 among the most challenging years in our lifetime. We owe a debt of gratitude to frontline health care workers, and others in the community who have risked their personal safety to keep our families and our economy going. Our thoughts and prayers remain with those who have been touched by the pandemic’s wrath. As with any difficult period in our lives, there are valuable lessons to be learned, and this time is no different. Here are several to ponder:

Perhaps most importantly, our current circumstances underscore the importance of a comprehensive financial plan that provides the clarity, perspective, and decision-making capability to guide you through life’s twists and turns.

We remain dedicated to helping you live your life to its fullest.

For informational purposes only. Not intended as investment advice or a recommendation of any particular security or strategy. Information prepared from third-party sources is believed to be reliable though its accuracy is not guaranteed. Opinions expressed in this commentary reflect subjective judgments of the author based on conditions at the time of writing and are subject to change without notice. For more information about Wealth Dimensions, including our Form ADV Part 2A Brochure, please visit https://adviserinfo.sec.gov or contact us at 513-554-6000.

Please be advised that this material is not intended as legal or tax advice. Accordingly, any tax information provided in this material is not intended and cannot be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer.