So much has changed in 2020 – a raging Covid19 pandemic, high unemployment, school and business closures, and decimated state and local government resources. And yet the U.S. stock markets have again reached new highs, reacted positively to the election results, and signal optimism about improving conditions in 2021. Labor productivity and corporate profits are strong. Historic low inflation and interest rates continue to relieve pressure from higher government deficits, and have enabled sectors like construction to thrive. Although loss of income has created hardship for many Americans, lower discretionary spending has also increased savings for others. At the moment, bank deposits total about $16 trillion, and there is tremendous pent-up demand in many sectors of the economy anticipating the safe reopening of travel, business and leisure activity.
We believe there are three items that are moving the stock market right now, and they all have different timelines. The first one, the biggest one, getting all the news today is the vaccines that will be available. They are expected to be available in the United Kingdom in the next week or so, and likely to be available in the United States starting around the end of the year or beginning of January. And while it will take months, probably until the middle of the year before we have significant vaccinations in the United States in terms of numbers, just the fact that it's available and there's a light at the end of the tunnel to return to normalcy is helping put a floor under the stock market in the intermediate, let’s say, one year term.
The shorter-term issue is the lack of a fiscal stimulus from Congress. This could cause a hopefully brief and mild market correction right after the end of the year. We will start to hear stories about evictions and bankruptcies and foreclosures after the first of the year without a stimulus program. That may worry the psyche of the stock market in the short-term, but any weakness will be short-lived relative to the impending vaccination of the population.
The third item is interest rates. With Janet Yellen being proposed as the Treasury Secretary, a notorious dove on interest rates, it's likely that we will see interest rates lower for even longer, with an emphasis on job creation and less concern about inflation.
Putting that into the context of the current secular bull market, there is hazard in trying to time the market for a correction because you could miss out given that two of these three big factors are positive and only one has the potential to be negative, if indeed there is no stimulus.
Please don’t hesitate if you have any questions about this or any other topics you would like to discuss. Meanwhile, I wish you a healthy and happy holiday season as we all make the best out of this unpredictable year.