We are generally positive on profitable, growth focused investments along with higher yielding areas of fixed income markets in the long term. It’s difficult to stray away from this stance in the short term; however, feel it may be prudent to slightly hedge any long term, growth focused market exposure.
The last 7 days have been eventful. The Biden/Harris victory, along with positive covid-19 vaccine results from Pfizer, have modestly eased prior uncertainty. Amidst these developments, a number of sensitive variables exist for the economy and investors.
Fiscal policy is a tool used by Congress to stimulate or sedate the economy. Many investors and leaders, including US Chamber of Commerce head Thomas Donohue, are calling for swift fiscal stimulus action to come from Congress. While fiscal stimulus earlier this year was effective for businesses and families, a divided government and a strong economic recovery may prevent a strong fiscal policy response before the inauguration in January. While the recovery has been strong, covid-19 cases have begun to spike again across the country. This could cause future targeted lockdowns, as we have already seen in New York City and in Europe. More lockdowns would likely hamper economic activity and could have short-term effects on investment markets. The timeline between Pfizer’s announcement and vaccine dispersion will be a critical development to monitor. Further, while the current administration could cause uncertainty and volatility leading up to inauguration day, social unrest has not proven to be a large deterrent to markets.
Foreign policy and trade should become more predictable under the Biden/Harris administration, which could prove positive for international markets. A focus on climate change and environmental sustainability may prompt a rejoining of the Paris accord. This activity could prove very positive for domestic and international ESG related companies and investments.
Tax law changes may be difficult to accomplish with a Republican Senate, so companies will likely continue to enjoy lower corporate taxes while continuing to refine their tax strategies due to continuity in the law. Our country’s budget deficit may continue to grow if there is more fiscal (or monetary) stimulus paired with lower tax revenues.
The Federal Reserve recently pledged to keep interest rates near zero, which continues to push the timing of a rising interest rate environment. Short-term fiscal and monetary stimulus could also be a catalyst for long term inflation increases. Due to this stance by the Federal Reserve and other international central banks, not investing and holding cash pose a risk to long term purchasing power. This dynamic encourages bids on any inflation-protected or yield-bearing investments.
Disclosure: Zenith Solutions LLC is an Investment Advisor registered with the State of Pennsylvania. All views, expressions, and opinions included in this communication are subject to change. Any information provided has been obtained from sources considered reliable, but we do not guarantee the accuracy, or the completeness of, any description of securities, markets or developments mentioned. We may execute transactions that may not be consistent with this communication’s conclusions. Past performance is not a guarantee of future results. All historical returns, expected returns, or probability projections, are hypothetical in nature and may not reflect future realized performance. This material is intended for information purposes only, and does not constitute investment advice, a recommendation or an offer or solicitation to purchase or sell any securities to any person in any jurisdiction in which an offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The opinions expressed are as of Nov. 9, 2020, and are subject to change without notice. Reliance upon information in this material is at the sole discretion of the reader. Investing involves risks. Asset allocation and diversification does not guarantee investment returns and does not eliminate the risk of loss.