By Tim Courtney, Chief Investment Officer

2020 is officially in the rearview mirror, and as we begin a new year, there are plenty of variables that could drive the markets in 2021. These three top our list of items we will be watching closely.

1. Vaccine rollout. The stock market has rallied in the last several weeks over expectations of a swift COVID-19 vaccine rollout.¹ Efficient execution of this initiative is critical for a couple of reasons. First, many households and small businesses nationwide are hanging on by a thread and desperate for a fully reopened economy as soon as possible.² It’s also necessary to boost consumer confidence and spending behavior. Even in areas without a lockdown in place, consumers are wary of participating in the economy and have saved cash at record levels.³ Widespread vaccination will enable U.S. consumers to feel more comfortable engaging in normal spending habits and help catalyze deferred consumption needed for a full economic recovery.

2. Interest rates. Despite strong economic growth in the third⁴ and fourth quarter⁵ of 2020, interest rates have remained stubbornly flat with the 10-year Treasury ending the year below 1%.⁶ This is one of the few market signals forecasting potential weakness ahead. In the coming weeks and months, we’ll be watching to see if interest rates can move meaningfully higher to match the positive market sentiment exuded by equities and other assets.

3. Federal spending and legislation. We now know there will be a unified government by the slimmest of margins. The market reacted by moving interest rates slightly higher at least for now.⁶ The market also seems to be expecting greater government spending and debt. With Democrats controlling the White House, Senate and House, it is more likely that tax rates, especially corporate rates, will increase and markets will have to account for this. Lastly, there is potential for more active regulatory policies that may affect corporate decision-making in terms of corporate spending, buybacks and dividends.⁷

There are still several variables we’re seeking clarity on as we commence 2021, but it appears very likely that earnings should have a healthy recovery from 2020’s decline. We will continue to keep a close eye on the factors discussed above to guide our investment decisions this quarter and throughout the year. If you have any questions, please contact your Exencial advisor.

Sources:

1. The Financial Times (12/2/20) – The ‘everything rally’: vaccines prompt wave of market exuberance
2. CNBC Make It (10/15/20) – 7 months into the pandemic, small business owners don’t know how much longer they can hold on: ‘We are in survival mode’
3. NextAdvisor (11/13/20) – The pandemic has resulted in record U.S. savings rates, but only for some
4. CNBC (10/29/20) – U.S. GDP booms at 33.1% rate in Q3, better than expected
5. Federal Reserve Bank of Atlanta (12/23/20) – GDPNow^TM
6. CNBC (data as of 1/8/21) – U.S. 10 Year Treasury
7. Fortune (1/8/21) – It’s officially a blue wave. What that historically means for stocks

PAST PERFORMANCE IS NOT AN INDICATION OF FUTURE RETURNS. Information and opinions provided herein reflect the views of the author as of the publication date of this article. Such views and opinions are subject to change at any point and without notice. Some of the information provided herein was obtained from third-party sources believed to be reliable but such information is not guaranteed to be accurate. In addition, the links provided within are for convenience only and the provision of the links does not imply any sponsorship, endorsement, or approval of any of the content. We do not guarantee the content or its accuracy and completeness. The content is being provided for informational purposes only, and nothing within is, or is intended to constitute, investment, tax, or legal advice or a recommendation to buy or sell any types of securities or investments. The author has not taken into account the investment objectives, financial situation, or particular needs of any individual investor. Any forward-looking statements or forecasts are based on assumptions only, and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. Any assumptions and projections displayed are estimates, hypothetical in nature, and meant to serve solely as a guideline. No investment decision should be made based solely on any information provided herein and the author is not responsible for the consequences of any decisions or actions taken as a result of information provided in this book. There is a risk of loss from an investment in securities, including the risk of total loss of principal, which an investor will need to be prepared to bear. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular investor’s financial situation or risk tolerance. Exencial Wealth Advisors, LLC (“EWA”) is an investment adviser registered with the Securities & Exchange Commission (SEC). However, such registration does not imply a certain level of skill or training and no inference to the contrary should be made. EWA may only transact business in those states in which it is registered, notice filed, or qualifies for an exemption or exclusion from registration or notice filing requirements. Complete information about our services and fees is contained in our Form ADV Part 2A (Disclosure Brochure), a copy of which can be obtained at www.adviserinfo.sec.gov or by calling us at 888-478-1971.