Time for a New Year

by Ralph Cole, CFA
Director, Equity Strategy and Portfolio Management

2020 will be a year many Americans will want to forget, and rightfully so. Record unemployment, tragic loss of human life and people trapped at home with no where to go. There is good news and bad news on the horizon. Sharing the bad news first … our challenges from 2020 won’t magically disappear just because the calendar switches to 2021. The rest of this article is dedicated to good news awaiting investors and the economy in 2021.

The Good News

Another fiscal stimulus package was passed this week. This will provide millions of Americans much-needed help as we wait for the economy to reopen. We’ve written extensively on the importance of extending unemployment benefits to those in the leisure and hospitality industries. Through no fault of their own, their industries simply cannot fully restart until vaccinations have been administered, and lockdowns have been lifted. This stimulus, along with a reopening economy has boosted expectations for growth in 2021. Ed Hyman, a leading economist on Wall Street, estimates that first-quarter GDP could grow at 5 percent. 

This positive sentiment is shared by consumers as well. The New York Fed’s Survey of Consumer Expectations reached its highest level since 2016 this week, as seen in the chart below.

Source: New York Fed’s Survey of Consumer Expectations

Different Sectors Joining the Market Recovery

In anticipation of a better 2021 economic backdrop, we have been positioning client portfolios into more cyclical sectors. The S&P 500 is divided into 11 economic sectors. As seen in the chart below, five of these sectors would be considered defensive, while six are considered more cyclical. The tip of the arrows represents our approximate current weights in client portfolios relative to the sectors of the S&P 500. The length of the arrows shows how many percent we either added to or removed from a sector.

Source: Ferguson Wellman

Brexit … Finally

Just in time for the new year, Britain has reached a free-trade agreement with the EU on Brexit. This led to the FTSE 100 hitting its highest level since the start of the pandemic. While there is no evidence that this will accelerate growth for either Britain or the EU, the removal of a major overhang is positive for the markets. It will be interesting to see what long-term vision Prime Minister Boris Johnson has for Britain.

Week in Review and Our Takeaways

  • Positive news on the fiscal stimulus front was welcomed by consumers and investors alike

  • A Brexit agreement is a positive for European and British markets and businesses

  • While the changing of the calendar doesn’t change current events, things definitely look brighter in 2021 than they have in the past 10 months of 2020

Disclosures