As I start to aggregate data from the past year and continue to gather thoughts on the upcoming months, I wanted to share some initial thoughts as we kick 2020 to the curb.
With 2020 being a wild year, and in Uncle Eddy fashion, I decided to take a quick vacation to Florida where I rented an RV in a trailer complex in Key Largo. Here, I was able to reflect on the extraordinary year – this year was a great year for learning, an opportunity you may get only once every decade or two in this business.
On an investment committee call this week, our entire team spoke about some of the lessons that we learned this year – here are some of our initial thoughts.
- There is a space that often exists between an economic outlook, a policy outcome, and the market’s response. It is frequently wider than the consensus appreciates.
- “The Market” is always right – sometimes you have to trust the tape. Markets rarely lead you down the wrong path too often or for very long.
- Expect to be surprised.
- Enough information is more valuable than perfect information.
- It pays to be hedged.
- Investing is hard.
This list will grow, not only from this past year, but it will continue to grow every year moving forward. We have jobs that require us to be right at least 50% of the time. For the baseball fans out there, that’s hitting .500 – a number that Ted Williams would drool over. A .500 average would put us down as the best in history, but this is the tall task that we, as investors, face every single day, month, year, and business cycle to stay relevant. We believe investors need to remain pragmatic; they need to understand that the stock market continues to evolve. To stay relevant, we need to evolve with it.
New Year, Day 1 Thoughts: What are We Watching In January?
As usual, trading has predictably quieted in the last week of the year, but this currently quiet trading atmosphere could be upended as soon as next week (both positively and negatively). So, given trading is quiet right now, we wanted to list three looming catalysts that we believe could move markets once we’re in the New Year.
Catalyst 1: Georgia Senate Runoff January 5th: Markets have actively embraced the “divided government” outcome from the November election, and also have widely assumed Republicans would keep a razor-thin majority in the Senate. But polls in Georgia have tightened considerably, and at this point many polls are slightly in favor of both Democrat candidates. Bottom line is that the market has embraced the divided government and reduced policy risks. Even if Democrats win, major policy changes are unlikely, but smaller ones are likely—and markets will have to reprice the expectation of no policy risks to this market, and we believe that will be a headwind.
Catalyst 2: More Stimulus? January 1-31: There’s surprising momentum for increased direct payouts to people beyond the $600 included in the now-signed stimulus bill. While $2,000 payouts seem unlikely at this point, with numerous Republicans signing on, it’s entirely possible those payouts get increased. This may put more downward pressure on the dollar and upward pressure on yields—and a quick rise in yields remains the biggest risk to this universally bullish outlook for stocks in 2020.
Catalyst 3: Johnson & Johnson Vaccine Results, Mid-January: Virtually any day now, markets are expecting Johnson & Johnson to release results from the Phase III vaccine trial. Given the very strong results from Pfizer, Moderna and AstraZeneca, expectations for a similarly strong result from JNJ are expected. Additionally, the JNJ vaccine is a single dose, which will substantially turbo-charge the inoculation process across the U.S. If those results don’t meet now lofty expectations, that will be a blow to the vaccine optimism that has been the primary factor in the rally in stocks since November.
Bottom line, the end of December was quiet, but that could change as early as the first Tuesday of the new year depending on what happens in Georgia. Regardless, markets have aggressively priced in a lot of positive resolution to these events (and more) in 2021, which we think is fine as long as that’s what happens. If it doesn’t, then stocks may see some volatility.
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