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December 3, 2020
Dear Valued Investor,
As 2020 comes to a close, we are already looking forward to a new year—and to a world very different from the onewe’re leaving behind. Areas of the economy have been damaged and may never fully recover, but other areas will adapt,reinvent, and help reinvigorate growth.
December also brings LPL Research’s annual market outlook Outlook 2021: Powering Forward, which reviews whathappened in 2020 and what to expect in 2021. It covers stocks and bonds, the economy, and a post-election policyenvironment built on new challenges, new opportunities, and new politics.
2021 is primed to deliver advances to further limit the impact of COVID-19, and the goal remains keeping the economyas open as possible while keeping people safe. Continued progress in the response to COVID-19, including furtherstimulus measures by the government, will be key to sustaining the economic recovery. As the pandemic subsides,restrictions are lifted, and consumers’ daily lives return to something close to normal, the pace of the recovery mostlikely will pick up speed—probably in the middle of 2021.
Another major milestone will be moving past the market uncertainty caused by presidential elections. Historically, thepost-election environment has been positive for the stock market. S&P 500 Index returns have been strongest with adivided Congress—one party controlling the House of Representatives and the other party controlling the Senate. A splitCongress with President-elect Joe Biden in the White House could be viewed as friendly to the markets.
The makeup of the Senate will have significant policy implications. A fifth COVID-19 relief bill may be the first priorityfor the new administration, but to be approved by a Republican-controlled Senate, it most likely will need to be smallerthan previously discussed. With an effective vaccine coming soon, Republican Senators may balk at another trilliondollar package. That would leave the Federal Reserve potentially as the only other policy support in Washington, DC, ifCOVID-19 causes further financial and economic stress.
Biden’s proposed corporate tax changes would potentially cut S&P 500 earnings by 10% or more in 2021, but a dividedgovernment most likely would take those proposals off the table. Smaller, targeted tax increases might still be possibleto fund a scaled-down version of Biden’s green energy and infrastructure investment programs, something that hasbipartisan support.
Also, Biden’s administration might reduce or eliminate tariffs, which could grease the wheels of global trade and providea boost to corporate earnings. Greater clarity on trade may make it easier for some companies to do business, but there’sthe potential of a more challenging regulatory environment as well.
Looking back, one constant in this difficult year has been the value of personal and professional relationships. Soundfinancial advice charted a long-term path for many investors that kept them from getting off course in a turbulent 2020.There still will be risks to navigate in 2021, but it’s important to remain focused on long-term investing goals, stay oncourse, and power forward.
We wish you a happy holiday season and encourage you to contact your financial professional with any questions.
Sincerely,Ryan Detrick, CMT Chief Market Strategist LPL Research