It looks like Joe Biden will be our Nations 46th President, the Democrats will retain control of the House of Representatives, albeit with a narrower majority, and the U.S. Senate is projected to remain in Republican hands pending the outcome of two Senate runoff races in Georgia on January 5th. The stock market has responded to the increased prospect of a divided government over the next two years with optimism. The S&P increased by 7.3% last week while the Dow Jones Industrial Average and Nasdaq Composite rallied by 6.9% and 9%, respectively. According to Barron's, the S&P 500 had its best performance for any presidential election week since 1932 and its best weekly performance since April of this year.
Today was another exceptional
day for the stock market with the Dow Jones industrial Average reaching an
all-time high after the positive news from the vaccine study from Pfizer and
BioNTech was released this morning. This
study was better than expected at protecting people from Covid-19 with Pfizer
stating it will ask health regulators for permission to use the vaccine before
the end of the year. Wide dissemination
of the vaccine should be available in 2021.
At Marietta Wealth, we
continue to advocate staying invested. The chart below from Morningstar
exemplifies why trying to time the market is so hard. When someone misses a strong week like last
week or big gains from today, it can affect their performance significantly. As
shown below, missing a few of the market's best days can hurt your total
Hypothetical investment of $100,000 in the S&P 500 Index over the last 20 years (2000-2019)
Morningstar as of 12/31/19. Past performance does not guarantee or indicate
future results. Index performance is shown for illustrative purposes only. You
cannot invest directly in an index.
Historically, the stock market has recorded its best performance under a Democratic President and a divided Congress. If the divided government scenario holds true for the next two years, we believe individual and corporate taxes should remain low; the Federal Reserve will remain extremely accommodative keeping interest rates near historic lows; Congress will likely pass an economic stimulus bill to help individuals and small businesses continue to weather the pandemic; and neither party will be able to pass extreme pieces of legislation. Maintaining the status quo should bode well for stocks.
Given the low interest rate
environment, near-term fiscal and monetary stimulus tailwinds, more predictable
international trade policies from the new administration, and the likelihood of
no major policy changes out of Washington, we remain cautiously optimistic on
stocks. As Peter Lynch reminds us, "the secret to making money in stocks is not
to get scared out of them." We are confident that if you take a long-term view
of your stock portfolio, you will see more ups than downs.
Please give us a call if you
would like to discuss your situation.
Marietta Wealth Management,