The election, Covid surge, economic uncertainty and huge budget deficits. These are the backdrops for the 4th Quarter.

The markets surged Monday, 11/9/2020, in reaction to Pfizer announcing a 90% effectiveness for its vaccine developed in conjunction with BioNTech and the presumed election results of the Presidency. No less than a week ago we were seeing a continued focus on tech stocks (what was considered by investors to have worked in the months going into the pandemic). However, this week as investors consider the impact of a vaccine there appears to be a rotation underway out of big tech and other “stay-at-home” providers into value and small stocks. This was evident on Tuesday when large tech growth stocks declined while value and small continued moving up. In the background, this rally is being supported by third quarter earnings, which have overall beaten expectations by a wide margin.

The bond market responded with rising interest rates on bonds with maturities longer than 2 years. Yields were held in check somewhat by the probable split of congress dimming the prospects of an enlarged pandemic stimulus.

While recounts and lawsuits are still pending, current indications suggest a Joe Biden win, with a control of Congress remaining divided between Democrats in the House and Republicans in the Senate. If current indications hold a divided government alters what otherwise would have been produced by an all blue wave, and markets and investors are looking ahead to a 2021 in which policy changes may be relatively modest. While Republican control of the Senate likely reduces any increase in taxes to pay for any new spending, it is likely at some point taxes will need to increase to pay for our national debt. See the article on end of year tax strategies to see if a Roth Conversion might help reduce your long-term tax burden.

So what’s to come - While we believe it is impossible to accurately predict market movement in the short term, we are of the opinion that if all stands stocks will continue some version of an upward momentum trend into the end of the year. We are likely still months away from a vaccine being widely available, and it is likely that economic activity will be limited until then. Likewise, should something change in the election and the Democrats do take control of the Senate, we could see a halt within the financial markets. Most analyst believe that the economy and stocks will continue this positive climb into 2021.

“Do not be anxious about anything, but in every situation, by prayer and petition, with thanksgiving, present your requests to God. And the peace of God, which transcends all understanding, will guard your hearts and your minds in Christ Jesus.” - PHILIPPIANS 4: 6-7

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Other resources on elections:

Charles Schwab - What to Expect from the “Lame Duck” Congress

Nuveen - Decision 2020: What the apparent Biden victory means for the markets and investors