The Prudent Retiree - January 2021
Prudent Retiree has a lot to cover in this edition—a recap of 2020 and the initial outlook for 2021. Here goes.
2020 was another wonderful year for investors. A year ago we were first hearing about Covid-19. By the end of the first quarter, Covid spread was rampant, we were frightened, the economy was shut down and the market abruptly collapsed. At year’s end, Covid was still rampant, the economy was beginning to recover and the stock market was roaring higher with strong support from the Fed and the promise of vaccines. The market ended the year with strong double-digit returns.
There was an election in 2020. The results brought joy for some and weeping and gnashing of teeth for others. There are numerous reasons to vote—tradition, values, medical care, the environment, the economy and many more. Our responsibility to you is to make decisions based on the market’s reaction. Nothing more. The market just doesn’t care if we are Democrats or Republicans.
The end of the 2020 election season is occurring now as we learn the results of the two Senate elections in Georgia. As I write, it looks as though Democrats will win both seats and take control of an equally divided Senate. Mr. Biden will be our new President and Democrats will narrowly control both Houses of Congress. What does this portend for the markets? The answer is we don’t know yet and it is risky to speculate. Prudent Retiree has told you that history shows divided government is best for the market. That does not mean the market necessarily does poorly when one party is in control. The market has had strong back-to-back years. That may or may not continue. No one knows so the prudent approach is to listen to the market and then react.
Certainly things will be different this year. It is reasonable to assume taxes and business regulation will increase. We will probably see ramped up fiscal spending on government programs. Generally, these conditions bode well for the mid and small cap sectors of the market. The large cap sector, especially big tech, tends to not do as well in these conditions. We’ll see and will structure our portfolios accordingly.
John Lennon was tragically murdered in December of 1980. The stock market closed for a moment of silence. His music as a solo performer and as a Beatle lives on. Ronald Reagan was elected President in November 1980. The Republicans took control of the Senate that year for the first time since 1954. Like now, there was both joy and weeping and gnashing of teeth. The S&P 500 was at about 140.
Yesterday, the S&P 500 closed at more than 3700. Take a moment and revisit all that has happened in the last forty years. It is not different this time. The lesson is don’t succumb to panic or euphoria. There are cycles.
Lennon sang that people liked to give him all kinds of warnings to save him from ruin and all kinds of advice to enlighten him. Boy, are we surrounded with that. Prudent Retiree believes that investors are wise to watch the wheels go round and round and listen to the markets.
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Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC. 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. Investing involves risk including loss of principal. No strategy assures success or protects against loss.
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