The Vantagepoint Market Perspective: Consequences Known and Unknown

01/12/2021

 

Our firm is based in the nation’s capital. And though it’s been many months since we’ve regularly frequented our office on North Capitol Street, it remains within a few blocks of the United States Capitol building. So, as we, along with the rest of the nation, watched the storming of the House and Senate during the tallying of presidential electoral votes last week, it held particular resonance.   

It’s still too early to fully understand what the fallout from last week’s chaos will be, both for our nation and for the economy as 2021 unfolds. Will it bring people of all political stripes together to agree on a path forward or will the different political factions become even more radicalized? We hope for the former but recognize as investors that it’s important to take a long-term view both of the political situation and its ramifications for the market.

Heading into the Nov. 3 election, we noted that one of the risks market participants might not have considered is what would happen if one of the presidential candidates refused to concede. And over the next two months, that was indeed what unfolded, which in turn had a decided impact on the outcome of the two Georgia Senate races.

The end result was that the Democratic party now narrowly holds all three chambers of federal power in Washington. Much is still unknown regarding what the dynamics of a one-party government will look like moving ahead, particularly on key economic issues such as additional stimulus plans, regulations, changes in tax laws, and a host of other topics that are likely to be considered by Congress and the incoming president in coming years.  

Blind Market Optimism?

Still, if there has been one consistent factor, it has been the market’s unrelenting optimism. Throughout all of the political and economic turmoil in recent months, stock market participants have maintained an uncanny ability to turn almost any new potentially negative development into a positive.

For instance, in the weeks following the presidential election, the market, deciding that the Republicans would win the two still-outstanding Georgia races and hold onto the Senate, pushed stocks higher. Their rationalization was that a divided government would not result in any major changes in policies or regulations.

And when the Democratic candidates won those two crucial Georgia races, traders — rose-colored glasses still firmly in place — celebrated the likelihood that, with the Democratic party completely in charge, there was now a greater likelihood of additional fiscal stimulus.

The same line of thought continued as the market eyed last Friday’s disappointing December payroll report, which showed the economy shed 140,000 jobs. That marked the first month of net job losses since April. The hospitality industry was particularly hard hit, with bars and restaurants accounting for the lion’s share of the layoffs, as the COVID-19-inspired shutdowns continued to hit that industry particularly hard. 

However, the market was nonplussed, with market participants yet again pushing the S&P 500 and the Nasdaq to new all-time highs. 

Still, while the market’s overall performance in the months to come may well be positive, underneath the hood there are ongoing changes in which sectors and companies are poised to win and lose from the power shift in the nation’s capital. That constantly varying dynamic reinforces our belief that active management continues to be important and likely will become even more relevant in 2021.   

The Virus and the Vaccinations

Nor is the news much better on the COVID-19 front, at least in the short term. Prior to the election, we noted our concern that a disputed presidential outcome could shift the focus away from combatting the spread of COVID-19. And sadly, that too has come to pass.

While both the Pfizer and Moderna vaccines were approved in record time prior to the end of the year, their distribution has not been as swift as many had hoped. As of January 11, roughly 25.48 million vaccines had been distributed across the U.S., but only 8.99 million doses had been given to people. Part of the problem has been that the administration of vaccines has been left to the 50 states and other jurisdictions, so the rollout has faced challenges both in terms of logistics and prioritization.

Another difficulty is the low temperatures required for the storage of the vaccines prior to use — while Moderna’s vaccine can be stored in a standard freezer, Pfizer’s vaccine requires ultracold storage in a specialized freezer. And that has limited the sites at which the vaccines can be distributed.  

Meanwhile, the ongoing influx of COVID-19 cases has strained hospitals in some areas of the country near their breaking point. We continue to encourage policies and behaviors that will support our health-care workers across the nation, who have gone above and beyond in the most trying circumstances over the past year to do their jobs.

The Year Ahead

As we move forward into 2021, the cumulative impact of the many situations we’re facing is daunting. However, when investing, it’s important not to be swept up in short-term events and to instead stay focused on your overall objectives, which for people saving for retirement are measured in years and decades and not anchored to short-term events.

Looking back over that longer horizon, our country and economy have weathered strife and setbacks, managing to adjust, innovate, and persevere even as new challenges emerge and we still fall short in key areas. We remain firm believers that retirement savers will be rewarded by looking past short-term dynamics and investing for the long term.

 

Disclosures:

This information is intended for institutional use only and is not intended for individual investors or the general public. This article includes links to external websites. While we believe this information to be reliable, we cannot guarantee its complete accuracy.

Please note that this content was created as of the date indicated and reflects the authors’ opinions. These opinions are subject to change, without notice, due to market conditions or other factors.

This is not intended as a solicitation nor does it constitute investment, tax, or legal advice. Reference to any fund or asset class is not a recommendation to buy, sell, or hold that fund or asset class. Neither ICMA-RC nor its subsidiaries are responsible for any investment action taken as a result of the information provided herein or the interpretation of such information. Investors should carefully consider their own investment goals, risk tolerance, and liquidity needs before making an investment decision. Investing involves risk, including possible loss of the amount invested. Past performance is no guarantee of future results.

When Funds are marketed to institutional clients by our Investment Only (IO) team, the Funds are offered by ICMA-RC Services, LLC (RC Services), an SEC registered broker-dealer and FINRA member firm. RC Services is a wholly owned subsidiary of ICMA-RC and is an affiliate of VantageTrust Company, LLC and Vantagepoint Investment Advisers, LLC. Learn more at www.vantagepointfunds.org.

Disclosures:

This website is for institutional use only and is not intended for individual investors or the general public.

This information is intended for institutional use only and is not intended for individual investors or the general public.

Please note that this content was created as of the date indicated and reflects the authors’ opinions. These opinions are subject to change, without notice, due to market conditions or other factors.
This is not intended as a solicitation nor does it constitute investment, tax, or legal advice. Reference to any fund or asset class is not a recommendation to buy, sell, or hold that fund or asset class. Neither MissionSquare Retirement nor its subsidiaries are responsible for any investment action taken as a result of the information provided herein or the interpretation of such information. Investors should carefully consider their own investment goals, risk tolerance, and liquidity needs before making an investment decision.

When Funds are marketed to institutional clients by our Investment Only (IO) team, the Funds are offered by MissionSquare Retirement Services,, an SEC registered broker-dealer and FINRA member firm. MissionSquare Retirement Services is a wholly-owned subsidiary of MissionSquare Retirement and is an affiliate of VantageTrust Company, LLC and MissionSquare Investments. Learn more at www.vantagepointfunds.org.