There is no shortage of cliches to describe 2020: “unprecedented”, “new normal”, “uncertainty” are just a few that come to mind. It is especially attention-grabbing how the market has responded. The S&P 500 index of U.S. corporate stock prices recently hit an all-time high despite the persistent uncertainty caused by the contested election and ongoing pandemic.
While the particulars of 2020’s challenges may be unique, the good news is that history reveals that markets have performed well in times of uncertainty, and despite headlines and headwinds, have experienced significantly more periods of positive returns than negative.
Courtesy of Dimensional Fund Advisors “The Bumpy Road to the Market’s Long-Term Average”
Additionally, it is well documented that broad U.S. stock markets have performed well, and experienced recessions under both political parties, but tends to favor periods of mixed power, i.e. when no single party retains majority presence over both houses of Congress as well as the Executive branch.
Why do markets appear to be so optimistic right now? Two main factors appear to be influencing the upward march of the major indices: 1. the recent positive revelations from Pfizer and Moderna that their respective trial vaccines indicate a greater than 90% success rate implying that we may be closer than expected to mass production and circulation of a vaccine to mitigate the effects of this pandemic. Secondly, markets are almost certainly banking on additional federal stimulus to counter the negative impacts on additional shut-down measures. Intervention in the form of unemployment benefits and small-business assistance is a near-must in hopes to stave off long-term unemployment and catastrophic recession. We can be assured that discipline is the key to achieving long-term financial goals. Wall Street, Main Street, nor any investor in-between knows what the markets are going to do. With history as our guide, adhering to financial plans, and maintaining composure in the ups and downs, our emotions will have a backdrop against which we can rationally stay the course. If the time has come to establish a financial plan and review your investment portfolio, we invite you to contact us to schedule a time to speak. We look forward to hearing from you.
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