When it comes to market performance it ultimately comes down to the battle of the Two V’s: The Virus vs. Vaccines. My title was borrowed from Professor Jeremy Siegel, Professor of Finance at the Wharton School of the University of Pennsylvania, and a senior investment strategy advisor to Wisdom Tree Funds. It perfectly describes what we are seeing play out in the markets right now. Covid-19 continues to deliver bad news, causing the market to retreat. Then positive vaccine news counters, giving us reason for hope and surging the markets forward. There is nothing any president or politician will do that will have more of an impact on the market than these two players in the coming weeks.
That being said, we can expect the markets to remain in flux for the near term. Professor Siegel expects that as more positive vaccine news comes forth, the ‘re-opening’ stocks and cyclicals (entertainment and hospitality) will receive a booster shot, as has been seen over the past week. Then, as virus news turns worse, the ‘stay at home’ stocks (Amazon and Zoom) start performing well again. Wash, rinse, and repeat.
Looking forward to 2021, Dr. David Kelly, Chief Global Strategist for J.P. Morgan, sees that the wide distribution of the vaccine in early 2021 “will almost certainly trigger a very strong economic revival and by 2022, the economy should be well on its way to a full recovery”. Remember, the stock market is a leading indicator of where the economy is heading, not a snapshot of current economic conditions. Look no further than 2009 when we still had double-digit unemployment and people were losing their homes, yet the S&P 500 was up over 26% that year. What ensued was a decade of economic growth. While it may take time for some to feel fully comfort again, many will resume their previous lives with great fervor. We will see a rebound in the entertainment and hospitality industries as people set out to “party like it’s 1999”. As a Prince fan, I could not resist the reference there.
The key takeaway? Stay calm and carry on. Remain invested for the long-term and you will reap the benefits. Great care has been taken to construct portfolios that will see you through this volatile time. For those of you taking income, many strategies have been implemented to protect both your income stream and long-term growth of your portfolios. For those of you in the accumulation phase, remain invested for growth and take advantage of the market volatility by continuing to add to your retirement plans and various investment accounts. The name of the game is share accumulation. The more shares you accumulate at lower prices, the more exponential your return on the way up. As always, if you would like to discuss your personal situation, please feel free to reach out.