Investment Outlook - Back to the Basics - JC Grason
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Back to the Basics 2021 Investment Outlook
From a global pandemic to a hotly contested
political season and a summer full of racial tension,
2020 was drama-filled — both in the U.S. and abroad.
Let’s look at the events of 2020 and explore where
we believe we’re headed in 2021.
Key Takeaways
> We ushered in 2020 on a positive the year, especially in hard-
note, following a great year for hit industries. While Congress
U.S. stocks. In March, however, approved a historic $2 trillion
markets took a dramatic plunge relief package in March, it spent
as the coronavirus invaded major the rest of 2020 locked in an
metropolitan areas. The pandemic endless back-and-forth about an
and how to handle it remained the additional stimulus package.
most discussed — and divisive —
topic of the year. > The 2020 presidential election
was especially contentious, with
> The first quarter of 2020 was the
Americans turning out in record
worst quarter for markets since numbers to vote. In early 2021, all
2008, as businesses shuttered eyes will turn to Washington and
offices and store owners closed President-elect Joe Biden to see
their doors. But investors felt what new policy initiatives will
whiplash as the market rebounded take top priority.
in the second quarter and pushed
higher to end the year. > Vaccine distribution will dominate
headlines in the first half of 2021. If
> Unemployment hit record highs
distribution goes smoothly, it could
in mid-2020 and remained mean great things for lives — and
stubbornly high throughout our economy — this year.2020 Recap
Even in the face of the bad news, markets focused on
potential bright spots throughout 2020.
In early January, the coronavirus was still far from As the dust settled in April, we were able to take
Americans’ minds, which were fixed instead on stock of the initial damage the shutdown had
Congress’ impeachment proceedings against created. Oil, which had started its slide during the
President Donald Trump. Markets, which (accurately) Russia-Saudi Arabia price war, went negative,
predicted President Trump’s acquittal, climbed unable to overcome too much supply and too little
to new highs as we reached a Phase 1 trade demand. Unemployment numbers skyrocketed,
agreement with China and passed the U.S.-Mexico- coming in at 14.7% by the end of April, compared to
Canada Agreement (USMCA). February’s rate of 3.5%.2
By late month, concerns of a virus disrupting By late spring, lights were beginning to flicker back
commerce in China began to emerge. Companies on across the country. States began reopening,
that rely on Chinese vendors and manufacturers, albeit somewhat hesitantly. And as they did,
such as Apple, warned of potential disruptions to markets rocketed back up, eventually recording
their supply chain, but markets shrugged off the the biggest 50-day move in stock market history.3
news and continued their upward climb. Unemployment numbers for May surprised
everyone, showing a gain of 2.5 million jobs instead
Virus news could no longer be ignored by the of a loss of 8 million as projected.4 Fortunately, most
middle of the first quarter. The virus, initially thought Americans began receiving stimulus checks from a
to be contained to China, had begun spreading historic $2 trillion stimulus deal, although the $1,200
to Europe and had made its way to the United distributions didn’t go far for individuals who had
States. Markets started on a downward spiral in been out of work since mid-March.
mid-February, propelled by the specter of a global
pandemic and a standoff over the price of oil
between Saudi Arabia and Russia.
The market news worsened as businesses and
retailers shuttered offices and stores across the U.S.
in mid-March. In total, markets plunged close to
30%, the worst drop since the fourth quarter of 1987.
It was also the worst quarter for stocks since 2008.1By summer, investors seemed to be more optimistic. re-established new restrictions, stalling economic
Then the death of George Floyd was caught on recovery. Congress persisted in a bitter battle
video, spurring protests, rioting and looting across regarding additional stimulus, even as individuals,
the country. But even as racial tensions climbed, families and businesses struggled to recover
markets seemed unaffected. The Nasdaq erased all their financial footing. Unemployment remained
of its 2020 losses by early June and surpassed the stubbornly high, jumping back up to 853,000 new
10,000-point level for the first time, while the S&P claims during the first week of December as new
500 briefly turned positive for the year.5 shutdowns took effect.10
Despite the initial progress in early summer, the Even in the face of the bad news, markets focused
second-quarter GDP reading was one of the worst on potential bright spots. And for the first time in
in history, dropping 31.7%.6 The abysmal number many months, individuals — both in the U.S. and
served as further confirmation that the U.S. was in a abroad — seemed to be embracing the market’s
recession, but it turned out to be a very short-lived optimism. Vaccine distribution began worldwide,
one. As the summer rolled on, businesses reopened with health care workers across the U.S. receiving
and Americans went back to work, with 10.8 million the first round of immunizations. The pandemic
jobs added to payrolls from May through August.7 didn’t hamper consumers from completing their
U.S. GDP increased by 33.1% in the third quarter, a holiday shopping, although many Americans shifted
stark contrast to the second-quarter reading.8 to online buying. Racial protests have quieted, and
oil prices have stabilized.
Markets continued their upward climb in the third
quarter, even as a second coronavirus wave and
continued protests raged across the U.S. By August,
the three major stock indices were positive for the
year, with technology stocks fueling the market run-
While many challenges
up. still lay ahead and we
The upward momentum mostly continued through still have a long way to
the last three months of 2020, although volatility go to beat the coronavirus,
increased as we neared the hotly contested Nov. 3
election. The Nasdaq and Dow reported their best a slightly unfamiliar tone
November since 2001 and 1928, respectively, while has started to creep
the S&P 500 and Russell 2000 both enjoyed their
best November ever.9 into headlines and
conversations.
By the end of the year, coronavirus news remained
grim, with infection rates and deaths spiking to That tone is hope.
new highs across the country. States and cities2020 was a memorable year, to say the least. While Americans, although that money won’t go far for
many challenges still lay ahead and we still have a individuals and families who have struggled with
long way to go to beat the coronavirus, a slightly unemployment and under-employment since March.
unfamiliar tone has started to creep into headlines The Federal Reserve, for its part, has said it will keep
and conversations. That tone is hope. Hope that we rates near zero until the economy demonstrates
may be able to reopen our cities and states and get “substantial” progress.11
people back to work. Hope that we can send our
kids back to the classroom full time. Hope that we It will also take much work to reunify a nation
may begin to recover from the financial and mental divided by party politics, radically differing views
strain 2020 imposed upon us. about handling a pandemic and social unrest. It
remains to be seen whether a new administration
With some work, we can make these hopes a can rally Americans behind the common goal of
reality. A $900 billion stimulus package, passed crushing the coronavirus in order to return our lives
by Congress and approved by President Trump — and the economy — to something that resembles
in late December, provides some relief for “normal.”
It will take much work to reunify a nation divided
by party politics, radically differing views about
handling a pandemic and social unrest.2020: The Market
Highs and Lows
Markets cratered in mid-March before roaring back to end
at all-time highs by the end of 2020. The market’s recovery
outpaced economic recovery, which has sputtered in the wake
of new restrictions, closures and shutdowns. The Dow hovered
in the 25,000-28,000 range throughout much of the year
and breached the 30,000-point threshold for the first time.
Meanwhile, the S&P 500 also reached all-time highs.2020 Market Highs & Lows Source: Yahoo! Finance, https://finance.yahoo.com/
Key Areas 1. Vaccine Distribution
to Watch
Economic recovery in 2021 will hinge on
the smooth distribution of vaccines to the
population at large.
in 2021
As new vaccines receive FDA approval and
come to market, immunization options will
become more readily available. However, it will
take several months for vaccines to reach every
person who wants one. Masks, social distancing
and other risk-mitigating factors will still be in
From politics to a pandemic, place for several months.
challenges abound both in the U.S.
and globally over the next few
months. Here’s a look at five topics
currently holding our attention.
2. Back to “Business
as Usual”
Until mass vaccinations are possible, restrictions
will most likely continue, especially in major
metropolitan areas. Continued restrictions will
prevent businesses from reopening fully, leaving
us with higher-than-usual unemployment
numbers and a suppressed economic recovery.
It will be interesting to see what a “return to
work” looks like following the pandemic. By the
time offices reopen, some individuals will have
been working remotely for a year or more —
and they may stay that way. A December 2020
report estimated that nearly 25% of Americans
will be working remotely in 2021.12 Some
companies, like Twitter, have already announced
permanent work-from-home policies.133. Unemployment Rates
Unemployment peaked at 14.7% in April and has Unemployment rates should continue to drop as
decreased steadily since. However, in October our economy reopens. In early December, U.S.
and November, it hovered at nearly double the Labor Secretary Eugene Scalia predicted a drop
3.5% reported in early 2020. After declining below 5% in the next year.14 But many workers
for several months, new unemployment claims will not have the same job to come back to; a
ticked back up in December as coronavirus Yelp study showed that nearly 100,000 businesses
cases increased and cities and states had permanently closed their doors by last
established new restrictions. September. 15 The hardest-hit industries included
restaurants, travel and brick-and-mortar retail.
2020 Unemployment Rates
Source: U.S. Bureau of Labor Statistics. December 2020. “Civilian unemployment rate, seasonally adjusted.”
https://www.bls.gov/charts/employment-situation/civilian-unemployment-rate.htm#. Accessed Dec. 29, 2020.4. Policies from a new administration President-elect Joe Biden has announced his Cabinet, and now he awaits inauguration on Jan. 20. He has already announced plans to ask all Americans to wear a mask during his first 100 days in office and to order a mask mandate for all federal buildings as well as airplanes, trains and buses. 16 What other policy initiatives will he address in the initial months of his presidency? And can he persuade members of Congress — some newly minted — to come together to provide additional financial relief for individuals and businesses? Energy, in particular, was a hot topic during the campaign and could be a target for early action. Oil prices have hovered between $40- $50/ppb in the few months as travel resumed and people ventured farther from home. Still, overall usage is down due to hampered economic activity. If President-elect Biden issues executive orders targeting the energy sector, oil prices could move upward.
5. Tech & Health Care Sectors Technology stocks dominated markets in 2020. In 2021, they could see an uphill climb as they face various lawsuits brought against them. Google has been accused of breaking antitrust laws with its online advertising practices. Facebook is also on the hot seat, facing charges of antitrust violations related to its ownership of WhatsApp and Instagram. 17 It remains to be seen what ramifications would result from successful lawsuits, both for investors and end-users who increasingly rely on technology for work, entertainment and daily life.
Great Ideas
What approach should investors Perennial Ideas
and financial advisors apply to > Save more. Retirement planning often entails a lot
of time and energy devoted to considering asset
financial portfolios in 2021?
allocation plans, withdrawal strategies, needs analysis
and more. But more attention should be diverted to
how much money investors save — and where and
These perennial ideas are how to save it.
best practices for investing
Saving is the most fundamental and important
— no matter what shape the component of successful investing. Aggressive saving
economic environment takes. allows individuals to take advantage of compound
interest. The best thing any of us can do for ourselves
and our families’ futures is to save more.
> Seek out low fees. Fees are a leading factor in the
success or failure of any investment. Reducing annual
fees by even 0.5% can result in significant savings for
investors over 20 years.18 Choosing lower costs (when
the product is right for the investor) can have residual
benefits that add up over the life of an investment.
> Diversify. In general, the greater a portfolio’s
diversification, the lower its riskiness. Lower risk is a
good thing, but only if the portfolio’s potential return
is healthy enough to meet the investor’s needs.
Fortunately, a well-diversified portfolio is generally
positioned to capture most of the potential upside
available with much lower volatility.> The “political trade” is a threat. Basing your investment decisions on politics is a recipe for disaster. Those who love or hate any given political person, party or policy must guard against letting politics dictate investment decisions. > Remember that “personal volatility” is dangerous. Trying to time the market is almost always a bad idea. Attempting to guess when the market will move — either up or down — is not an investing strategy; it’s just luck. > Maintain a sense of where you are. Good investing requires exceptional self-awareness. Dealing with risk doesn’t just mean knowing how much tolerance investors have for pain when markets are uncooperative. It also means understanding how much risk one can take in their investments to maximize growth without jeopardizing financial goals. Every investor needs to know and understand their personal tolerance for risk and its relation to their financial journey.
Tom's Final
Thoughts
The best investing strategy for 2021
is to remain cautious and patient.
Overall, data is good, and stocks do not appear to be overvalued.
There are still too many “what-ifs” and “wait-and-sees” to say
definitively which direction markets will go, particularly in the first
half of the year.
Volatility was rampant in 2020 but returned to
more normal levels by the end of the year.
However, it could rise again if economic reopening efforts are
hampered or executive orders are issued that have adverse effects
on certain industries, including energy and health care. My advice is
to make sure you are positioned properly and allocated in a way
that aligns with your risk tolerance and goals.
I am very optimistic as we start 2021.
I see the road ahead of us like a hike; we may have an uphill climb
immediately before us, but it will be worth it once we get to the
top. We’ll have dips, curves and inclines along the trail. We’ll need
to look down to check our footing now and then, but the important
thing is to stay focused on the destination. As you navigate the
trail, rely on your advisor to serve as your guide.1 Aimee Picchi. CBS News. March 31, 2020. “Stocks suffer their worst quarter since 2008.” https://www.cbsnews.com/news/stocks-down-wall- street-has-worst-quarter-since-2008-covid-19-2020-03-31/. Accessed Dec. 16, 2020. 2 National Conference of State Legislatures (NCSL). Aug. 7, 2020. “National Employment Monthly Update.” https://www.ncsl.org/research/labor- and-employment/national-employment-monthly-update.aspx. Accessed Dec. 29, 2020. 3 Matthew Fox. Business Insider. June 4, 2020. “Stocks just had their biggest 50-day rally ever – here’s what they did next after similar gains (SPY).” https://markets.businessinsider.com/news/stocks/stocks-biggest-50-day-rally-what-they-did-next-past-2020-6-1029282236. Accessed Dec. 16, 2020. 4 Jeff Cox. CNBC. June 5, 2020. “May sees biggest jobs increase ever of 2.5 million as economy starts to recover from coronavirus.” https://www. cnbc.com/2020/06/05/jobs-report-may-2020.html. Accessed Dec. 16, 2020. 5 Paul R. La Monica. CNN Business. June 9, 2020. “Nasdaq tops 10,000 for the first time ever.” https://www.cnn.com/2020/06/09/investing/ nasdaq-record-10000/index.html. Accessed Dec. 16, 2020. 6 Bureau of Economic Analysis. Aug. 27, 2020. “Gross Domestic Product, Second Quarter 2020 (Second Estimate) Corporate Profits, Second Quarter 2020 (Preliminary Estimate).” https://www.bea.gov/news/blog/2020-08-27/gross-domestic-product-second-quarter-2020-second- estimate-corporate-profits#:~:text=Real%20gross%20domestic%20product%20%28GDP%29%20decreased%20at%20an,quarter%20of%20 2020%2C%20real%20GDP%20decreased%205.0%20percent.. Accessed Dec. 16, 2020. 7 U.S. Bureau of Labor Statistics. “Databases, Tables & Calculators by Subject.” https://data.bls.gov/timeseries/CES0000000001&output_ view=net_1mth. Accessed Dec. 16, 2020. 8 Jeff Cox. CNBC. Oct. 29, 2020. “U.S. GDP booms at 33.1% rate in Q3, better than expected.” https://www.cnbc.com/2020/10/29/us-gdp-report- third-quarter-2020.html. Accessed Dec. 16, 2020. 9 Mark DeCambre and Sunny Oh. MarketWatch. Nov. 30, 2020. “Dow sinks 272 points, but books best November since 1928, and best month since ’87.” https://www.marketwatch.com/story/stock-futures-lower-but-dow-on-track-for-best-month-since-1987-11606738776. Accessed Dec. 16, 2020. 10 Scott Horsley. NPR. Dec. 10, 2020. “Unemployment Claims Jump Just Before Critical Aid Programs Are Set to Expire.” https://www.npr.org/ sections/coronavirus-live-updates/2020/12/10/944955495/unemployment-claims-jump-just-before-critical-aid-programs-are-set-to-expire. Accessed Dec. 16, 2020. 11 Christopher Rugaber and Martin Crutsinger. The Associated Press/The Orange County Register. Dec. 16, 2020. “Federal Reserve keeps rate near zero, sees brighter economy in 2021.” https://www.ocregister.com/2020/12/16/fed-keeps-rate-near-zero-but-sees-brighter-economy-in-2021/. Accessed Dec. 16, 2020. 12 Lori Ioannou. CNBC. Dec. 15, 2020. “1 in 4 Americans will be working remotely in 2021, Upwork survey reveals.” https://www.cnbc. com/2020/12/15/one-in-four-americans-will-be-working-remotely-in-2021-survey.html. Accessed Dec. 17, 2020. 13 Brian Fung. CNN Business. May 12, 2020. “Twitter will let some employees work from home ‘forever.’” https://www.cnn.com/2020/05/12/tech/ twitter-work-from-home-forever/index.html. Accessed Dec. 17, 2020. Talia Kaplan. Fox Business. Dec. 8, 2020. “Unemployment rate will drop below 5% in 2021: US labor secretary.” https://www.foxbusiness.com/ 14 economy/unemployment-rate-will-drop-below-5-in-2021-us-labor-secretary. Accessed Dec. 17, 2020. 15 Anjali Sundaram. CNBC. Sept. 16, 2020. “Yelp data shows 60% of business closures due to the coronavirus pandemic are now permanent.” https://www.cnbc.com/2020/09/16/yelp-data-shows-60percent-of-business-closures-due-to-the-coronavirus-pandemic-are-now-permanent. html. Accessed Dec. 17, 2020. Victoria Albert and Kathryn Watson. CBS News. “Biden says he plans to ask Americans to wear masks for his first 100 days in office.” https:// 16 www.cbsnews.com/news/biden-call-for-masks-first-100-days-in-office-inauguration/. Accessed Dec. 29. 2020. Reuters. Dec. 16, 2020. “Factbox-U.S. government, state lawsuits pile up against Big Tech market dominance.” https://www.reuters.com/article/ 17 us-tech-antitrust-google-states-factbox/factbox-u-s-government-state-lawsuits-pile-up-against-big-tech-market-dominance-idUSKBN28Q34X. Accessed Dec. 18, 2020. 18 SEC. June 26, 2019. “Updated Investor Bulletin: How Fees and Expenses Affect Your Investment Portfolio.” https://www.investor.gov/introduction- investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins/updated. Accessed Dec. 17, 2020.
AEWealthManagement.com 866.363.9595 2950 SW McClure Road Topeka, KS 66614 AE Wealth Management, LLC (“AEWM”) is an SEC Registered Investment Adviser (RIA) located in Topeka, Kansas. Registration does not denote any level of skill or qualification. The advisory firm providing you this report is an independent financial services firm and is not an affiliate company of AE Wealth Management, LLC. AEWM works with a variety of independent advisors. Some of the advisors are Investment Adviser Representatives (IAR) who provide investment advisory services through AEWM. Some of the advisors are Registered Investment Advisers providing investment advisory services that incorporate some of the products available through AEWM. Information regarding the RIA offering the investment advisory services can be found on https://brokercheck.finra.org/. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. This information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. None of the information contained herein shall constitute an offer to sell or solicit any offer to buy a security or insurance product. The information and opinions contained herein provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by AE Wealth Management. The information and opinions presented are those of Tom Siomades and do not necessarily reflect the views of the firm providing you with this report or AE Wealth Management, LLC. 12/20-1456480
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