Trisha's Thoughts



Trisha shares her thoughts on the markets, either about specific events that are happening or the market in general. Please check back regularly for new content. 

Yosemite National Park scenic view of El Capitan and Cathedral cliff


Quarter Four2020 Update

As the legend goes, when the Phoenix resurrects from the flames, she is even more beautiful than before.

It can be hard to reconcile the realities of 2020 with how the investment markets performed.  It was a year like no other, dominated by a global pandemic the likes of which the world has not seen in a century.  All of our lives have been impacted in very real ways and as governments struggled with how to cope with Covid-19 the economy was directly impacted as well.  The US economy went from growing at about a 2.2% rate in 2019 to experiencing its first recession in over a decade.  And despite some bounce back in the fall, economists estimate that US annual GDP growth for 2020 will be negative for the first time since 2009.

In the face of this I know it may be surprising – though likely pleasantly so – to look at your enclosed portfolio report.  In my communications to all of you throughout last year I talked about how I felt that the initial stock market declines were larger than the situation warranted and that I expected some recovery in prices to occur once investors recognized that, though tragic and horrible, Covid-19’s impacts on the economy would likely be temporary.  Last quarter I highlighted how the initial stock market surge had been concentrated largely in areas that were still able to grow during the stay at home environment and that I thought that other types of stocks could benefit when the timeframe for a return to normalcy seemed more predictable.  That seemed to occur in late November with the announcement and subsequent approval of two Covid-19 vaccines in the US – spurring the Russell 1000 Value Index to climb out of its double-digit deficit for the year and into slightly positive territory.

Looking just at the investment markets, 2020 shaped up to be a pretty solid year.  Not only did the broad US stock market recover the losses that occurred in the spring, but it went on to post solid gains.  The end of year surge helped international stocks to do the same.  Even bonds had a particularly nice year as they received the one-time benefit of price appreciation that corresponds with falling interest rates. 

As investors it is incumbent upon us to always be forward looking because the investment markets have historically moved based on what is anticipated to happen in the future, much more than what has happened in the past or even what is happening today.  Looking ahead, the optimistic case is that Covid-19 vaccination programs are successful, and that some amount of economic normalcy is able to return later this year.  The backdrop though has changed, and largely for the better if you are a stock investor.  Interest rates are at historical lows and the Federal Reserve has committed to keeping them there for an extended period, the financial system appears healthy and is awash in liquidity, and, while politicians may debate about whether even more governmental fiscal intervention is warranted, there is no arguing the fact that the two rounds that have already occurred dwarf the size of what was done following the Great Recession.  As strange as it seems, there really may be a rational explanation for the stock markets being up as much as they are.

We think there is a possibility that we could be seeing the green shoots of an economic resurgence that could last for some time.  While uncertainty abounds, the potential for pent up demand to drive a surge in economic growth seems reasonable.  Already there are reports that luxury cruise lines are sold out for their 2022 sailings and there are conferences and events starting to confirm dates again.  Humans are by nature resilient and social.  We want to do things – go places and be with people.  Once humanity feels safe doing so I don’t think it is a stretch to think that many will.

Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties which are difficult to predict.  Past performance is not indicative of future results.  All indices are unmanaged and investors cannot invest directly into an index.  Diversification does not ensure against market risk.