In what has been a topsy-turvy year, investors are pondering what has gone on with the markets and broader economy and what to do next.
The final quarter of 2020 continues the waiting game, as we watch economic data to see if a recovery can be sustained, anticipate the outcome of the U.S. presidential election, and wait to see how the coronavirus crisis plays out.
We compiled a list of questions that might be on investors’ minds as 2020 concludes. Our responses to these questions can be found in recent Janney Investment Strategy Group commentary.
1. When will the economy recover?
Some parts of the economy are improving or returning to pre-pandemic levels, while others continue at a slower pace. Jobless claims remain elevated and an autumn surge in COVID-19 cases reminds us that the economic recovery depends largely on the path of the virus. Still, incoming data is encouraging and remains consistent with a strong recovery.
To keep up with the rapidly evolving developments, we provide a weekly economic and financial update.
2. How will additional stimulus keep supporting the economy during the crisis?
Although U.S. lawmakers continue to grapple over the details, another massive relief package is inevitable.
The need for additional stimulus cannot be overstated. We identified on several occasions in our commentary the importance of another stimulus package—there would be a void in consumption that amounts to $800 billion-$1 trillion without additional relief. Emboldened consumers and businesses are necessary to propel the economy forward.
Meanwhile, fiscal and monetary authorities here and abroad have adopted measures to resurrect the global economy. In the U.S., the Federal Reserve’s accommodative monetary policy has helped ignite activity and the central bank said it would keep interest rates near zero for years to come.
We have discussed the impact of stimulus measures and monetary policy in our podcasts and regular commentary about the Federal Reserve and interest rates.
3. How will the 2020 U.S. presidential election affect markets?
Things can change quickly when it comes to the election. There is some certainty with the incumbent Trump. If Biden wins, the prospect of policies to raise corporate and individual taxes and stiffen the regulatory climate weigh on business profitability and sentiment.
From an investor’s perspective, it is important to prepare for volatility no matter the election outcome. This is why we encourage a strategy of nearer-term (0-4 months) caution when committing an abundance of one’s capital to equity prices now. Stage money into the market. Hold to a more sanguine view of what the market is going to look like 12 months on.
Once the election passes, attention will turn to what policies the president will pursue. Sector selection will
play an increasingly important role in short-term portfolio results. Therefore, investors should watch for opportunities that arise among the S&P 500 sectors.
Our Election 2020 coverage has included investment insights and historical information on market behavior during election years. This coverage will extend beyond the election to prepare investors for what is ahead.
4. What asset allocation moves can keep my portfolio resilient?
As stated in the recent multi-asset strategy report, the stock market had a remarkable decade leading into 2020. Several things contributed to equities’ decade-long performance, including non-threatening levels of inflation, low interest rates, a strong labor market, and domination by secular growth companies in sectors such as Technology and Health Care.
Now, investors must be aware of dynamic shifts that are taking place that could alter the path of the past.
Each month, Investment Perspectives provides timely information on macroeconomic events, equities, and fixed income markets. This information offers a strategic framework, and some tactical considerations, from which investors can make decisions about asset allocation.
Additionally, our special reports detail long-term investment trends with the potential to impact markets and the economy. Recent special reports include 5G Investment Implications and Investment Themes for the Next Decade.
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