Possible Disruption

Happy New Year! We want to start out by saying that record low-interest rates, monetary actions by the Federal Reserve, and the stimulus package passed by Congress last year, all helped with the growth we witnessed in the markets. We think that story will continue into 2021. One thing we are following carefully is the senate runoff tomorrow in Georgia and the market impact of those results. Going back to 1950, the market has significantly outperformed with a divided congress with annual market returns averaging 17.2%. Something else that is interesting is that annual GDP has historically been higher with a Democratic controlled congress. One reason for that is that there has typically been more government spending which drives GDP higher. Why does the election results in Georgia matter to the market? If the Democrats split both seats, President-elect Biden will have more control over both chambers of congress and can move to reverse the corporate tax cuts of 2017 which would immediately put company earnings and stock prices under pressure. However, this is where the trend of the more stimulus on congress story could continue in the new year. The thought is that a Democratic victory could boost the market by raising expectations for more aggressive fiscal stimulus on top of the already billions of dollars deployed by congress last year. It is somewhat baked into equity markets that there will be a divided congress. A Democratic sweep could disrupt the reason why the markets performed so well after the election last year. It is hard to overstate how important these elections are for the size, scale, and speed of the 2021 fiscal tax and regulatory policy and could immediately impact the markets to start off the new year.

Technology Innovation

A major trend in 2020 was the focus on technological advances. Healthcare felt the innovation with the vaccine, schools found new ways to learn virtually, and businesses found more of an online presence. We had decades’ worth of innovation compacted into one year. One of the big questions for the market and for individuals is did we pull forward future growth and will we not have to pay that price by having slower growth going forward or did we reset and have a new baseline that we will now build off of and be more productive going forward? One of the reasons why this is so important is that if you look at the price to earnings ratio of the S&P 500, it is currently 40% above the 20-year average. That is because prices have held up but earnings have been hurt. There are two ways to fix that elevated level. Either the prices can come down and hurt investors or earnings can outperform. Earnings will outperform if we become more productive and more efficient. These recent technological advances may create a more efficient corporate America that has higher profits. The Georgia election will likely have an impact on those earnings as well through taxes, but it raises a lot of questions. Some of these questions you can ask yourself about innovation as we get 2021 started. Do you think you will do more online shopping and have more goods and services delivered than you did before, or do you think you will start doing less and start going back to the stores? Will you start traveling more and getting things done in person as opposed to virtually? What will be interesting to see in 2021 is did the quick advancement of the COVID vaccine create a new baseline for vaccine development or did we spend all our capital on this vaccine putting us behind on the development of other potential miracle drugs? There are a lot of questions to be asked and the first quarter of 2021 is likely too soon to get answers to all those questions but it’s worth putting them out there. When things start to re-open it will be interesting to see if people go back to their norms. Will they start eating in restaurants, traveling, working in offices buildings, and doing more face-to-face activities or will they continue to build off of the advancements created in 2020 by continuing to do things virtually and online? A lot of innovation is up in the air. Typically, you would say that technology has never been this fast and will never be this slow again because technology is always advancing but there has been a lot of human behavior changes this past year that has the potential to be reversed. It could end up being good or bad and it’s something for us to watch for moving forward.

Technical Analysis

There are certain indices that we follow, such as the S&P 500, to gauge market performance. On December 31, 2020, the S&P 500 closed at 3,756. This is significant due to it being the last day of 2020. This has created a new resistance level in the market of 3,800 and a new support level of 3,700. One thing that we will particularly be watching in the upcoming months will be moving day averages. The election coming up in Georgia will be something we focus on from a short-term standpoint with the 20-day moving average. We will also be looking at intermediate and long-term averages of 100 and 200-day moving averages. Looking at these numbers will give us a better indication of what the trends are. Within the S&P 500, there are 11 sectors. These sectors we will keep an eye on individually, not just the overall S&P 500. Some of these sectors could be affected more than others such as financials and technology. These will be the ones we follow to see what the consumer does in relation to innovation and technology in the upcoming months.

 

 

Greg Powell, CIMA®
President and CEO
Wealth Consultant
Email Greg Powell here

Bobby Norman, CFP®, AIF®
Managing Director
Wealth Consultant
Email Bobby Norman here

Trey Booth, CFA®, AIF®
Senior Vice President
Wealth Consultant
Email Trey Booth here

Adam Vansant, AIF®
Associate Vice President
Wealth Consultant
Email Adam Vansant here

 

Fi Plan Partners is an independent investment firm in Birmingham, AL, serving clients across the nation through financial planning, wealth management and business consulting. Fi Plan Partners creates strategies in the best interest of their clients using both fee based investing and transactional investing.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

Economic forecasts set forth in this presentation may not develop as predicted.

No strategy can ensure success or protect against a loss.
Stock investing involves risk including potential loss of principal.

Securities and advisory services offered through LPL Financial, Member FINRA/SIPC and a registered investment advisor.

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