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Is the Best Yet to Come?

None of us thought we would ever experience anything like the past year.  We would like to think it was a nightmare rather than reality.  Adding to the disruptions of the Covid-19 pandemic, the election took a back seat for most of the year.  Although investors were nervous leading into the election, the market shrugged off any negative news and responded positively to vaccine news.   The markets were tested again by a contested election and most recently an attack on our nation’s capital.  It is hard to believe the market remained disconnected and ignored all of this. 

Although we are not yet through the worst of the pandemic, the stock market continues to advance.  Many investors have asked why there is a disconnect between the stock market and the economy.  It may be a bit misleading since the stock market was led mainly by only a few stocks.   If investors were to look under the hood of the S & P 500, they would find that five stocks - Apple, Microsoft, Amazon, Facebook, and Alphabet/Google - massively outperformed the other 495 stocks.[1]  

How can this market continue while the overall economy struggles to get back on track?  Despite the chaos of the past year there is reason for optimism.   Although there may be some setbacks with vaccine rollouts across the country, we have reason to believe 2021 could be brighter as we move further out, and Covid-19 is less of a threat to everyday life.  Easy monetary policy and fiscal policy combined with the many vaccines coming to market may lead to a strong rise to economic and earnings growth as we begin to reopen here and abroad.  

The sectors of our economy that were out of favor in 2020 along with global economies will slowly come back on track as vaccinations take hold during 2021.  Another bright spot is the consumer.  Investors have stashed $4.7 to $6 trillion dollars into cash, money markets and bank deposits since March 2020 when the pandemic hit. This is more than double that during the financial crisis in 2008.  As we gain confidence resuming our new normal, the $4.7 to $6 trillion dollars will need to go somewhere.  Not all will certainly return to the economy as consumption, but even 25% would be a huge stimulus injection.  Best of all it costs us nothing since these dollars are not fiscal stimulus but are rather driven by consumer spending.    

 Our philosophy has been to clear out the noise and strategically plot a course that our clients can navigate through the good, the bad, and the ugly.  This pandemic has been more than ugly; it has been downright depressing for many households.   As investors and Americans, we know we will always find a way, even in the hardest of times, to find a silver lining.   There will be ripple effects of Covid-19 that are yet to play out, but we remain upbeat as we navigate our way through the headwinds.  Resilience makes us and our nation stronger and feeds our optimism as investors. 

 Thank you for continuing to believe in our investment philosophy even if it seems Armageddon is knocking at your door.  Your resilience during 2020 is just the beginning of your successes to come.  We look forward to our conversations and being able to again meet in person this year.   We are so grateful for your steadfast trust in us.  We will reach the other side of this together.  We are looking forward to a brighter 2021.

Thomas L. Menzel, CFP®                                             Laura Biermann, CFP®
President                                                                       Vice President

IMPORTANT DISCLOSURES:  The opinions presented in this communication are subject to change without notice and no representation is made concerning actual future performance of the markets or economy.  Information obtained from sources is considered reliable but is not verified.  The research and other information provided herein speak only as of its date.  We have not undertaken and will not undertake any duty to update the research or information or otherwise advise you of changes in the research or information.  Performance information presented is not an indication of future results and index data is provided for market reference purposes only.  This is not an offer to buy or sell or the solicitation of an offer to buy or sell any security/instrument or to participate in any particular trading strategy.  This document is the property of Legacy Financial Advisors and is intended solely for the use of the Legacy client, individual, or entity to which is addressed.  This document may not be reproduced in any manner or re-distributed by any means to any person without the express consent of Legacy.  This material is for educational purposes only.  Mis-transmission is not intended to waive confidentiality or privilege.

[1] https://www.thestreet.com/video/liquidity-consumer-confidence-stock-market