2021 Post Election Outlook: Cautious Optimism

With the uncertainty of an election year nearly behind us, and COVID-19 vaccines heading for production, the stock market has notched new record highs that may signal an economic recovery on the way. The Dow Jones Industrial Average (DJIA) closed above 30,000 points for the first time at the end of November – an encouraging sign of investor confidence for the future. Even more remarkable is the growth in the DJIA since its low of just under 18,600 during the worst of the early pandemic decline.

President-elect Biden has vowed to push for more stimulus to bolster the economy.  Among those priorities he has announced are infrastructure rebuilding, healthcare, trade, and climate change. His selection for Treasury Secretary, Janet L. Yellen, is a known entity on Wall Street, well respected for her steady leadership as Federal Reserve chair from 2014 to 2018.

A divided government is anticipated, with Republicans expecting to control the Senate after the January runoff election in Georgia and Democrats maintaining their majority in the House of Representatives. A Biden administration likely governed by a split Congress and a conservative Supreme Court eliminates some of the most extreme policies on either the right or left.

The market’s gains this past month have assumed a quick vaccine approval and deployment. Pfizer, Moderna and AstraZeneca have all announced that their vaccine candidates showed favorable results in trials, which means that the pandemic could be under control in the months ahead. These vaccine developments are tempering lingering concerns over rising virus cases in the United States and the prospect of new government restrictions on businesses aimed at limiting its spread.

There may be, however, a massive logistical challenge to distribute the vaccines, which could dash hopes for a quick return to normal life.

While recent data show economic growth slowing and consumer confidence flagging, markets are forward-looking and betting the recovery will gain steam, particularly with the COVID-19 vaccines on the horizon. Investors are looking to mid -to late- 2021 when conditions may hopefully return to normal and there is not too much long-term disruption to the economy. Pent up demand with a high personal savings rate and paid down debt suggests that households have money to spend when they can.

Investors are encouraged by continued government stimulus and the possibility of more.  While the Federal Reserve has indicated that it won’t be raising interest rates from near zero any time in the near future, discussion to restart negotiations on another coronavirus relief bill after months of stalemate have been making slow progress. Several unemployment-aid measures passed in the spring have already expired or are set to expire at year-end.  While there is optimism in the markets, the near-term growth may be more difficult for households and businesses.

It has been an extraordinary year, and 2021 will bring challenges and opportunities as the world adjusts to a post-COVID environment. We will keep our ears to the ground as the markets respond, and encourage you to contact us with questions about how investors might be effected.