“In times of change, learners inherit the earth, while the learned find themselves beautifully equipped to deal with a world that no longer exists”. This quote by Eric Hoffer caught my eye and could describe the world in 2020. We all could probably create a long list of social, political, and economic challenges we faced this year that have required us to be “learners”. We have been dealing with a world, and an economy, in flux in 2020. We at Harvest responded to this event in multiple ways as I have written in past newsletters, and as we head into the 4th quarter, we continue to assess the slow but persistent return to normalcy. This is when I am also reminded of the adage, “the more things change, the more they stay the same.” While 2020 is shaping up to be quite the outlier, 2021 will likely bring us closer to the good ole’ days when masks were something worn only on Halloween and extended family dinners and celebrations were something to look forward to.
Even with all the changes we have experienced, some fundamental truths still hold fast. For example, headline news is mostly disconnected from the economy. It creates short-term emotion that often causes stock market volatility. While this type of news can drive the markets, it typically only does so for short periods of time. It is the economic data and strength of the economy that drives long-term returns. Our job as advisors is to continually weed out the noise from the news and look past the sensational headlines and media rumors. By focusing on economic data and company fundamentals, we are better positioned to deliver real returns for you.
No doubt, some of you are concerned with the upcoming election. Historically, elections do not drive the market for a prolonged period of time. However, we are forecasting multiple scenarios, some of which may generate uneasiness in the near-term, e.g. the Bush/Gore “hanging chad” debate. Even in these types of situations, we are confident that they will be resolved in due course and without cause for concern.
Looking at the economy, there are encouraging signs here and abroad. As we continue to emerge out of the first-ever planned recession, there are promising signs developing across a wide range of leading economic indicators. As we head into 2021, we anticipate the end of the recession and a move into a recovery phase, leading to accelerating economic growth by the end of next year. We believe Real Gross Domestic Product will begin to rise and the nascent recovery will accelerate faster than that which followed the Great Recession.
The main risk to the recovery is the potential for elevated COVID-19 cases and reopening reversals. The reinstatement of a broad-based shutdown would create considerable downside risk. While we expect to see regional issues, we do not anticipate a repeat of the national shutdown we experienced earlier this year. In closing I’d like to add that the market returns this year are skewed in favor of a handful of technology stocks (many of which we own in our client portfolios). We expect broader participation in the year ahead and perhaps even a reversal of sorts as those underperforming sectors play catchup in the coming year.
We continue to maintain a strong equity mix and a more conservative fixed income portfolio as we travel through the remainder of the year. If you would like to discuss anything further, please let us know. As always, we thank you for your continued trust.
Marc Henn, CFP®