We’re closing in on the end of 2020 and I wanted to address two topics today and discuss how I believe they will affect the economy and the stock market.
First, I wanted to discuss the election outcome, which has not been totally decided as there is a runoff in Georgia for the final two seats in the Senate. The Republican’s hold a 50-48 edge going into the runoff election on January 5th.
Why is this important?
While Joe Biden is considered a middle of the road Democrat, he still has an agenda that has a few negative implications for businesses, namely a corporate tax increase from 21% to 28% and increased government regulations. If the Senate has a Republican majority, it is doubtful that his proposed corporate tax increase or proposed increase in estate taxes will go through. What it will do is cause compromises if President Biden wants to get any of his Agenda accomplished, which would imply a more middle of the road approach.
The second topic of discussion is the development of vaccines and therapeutics and what impact it could have on the economy and stock market. While we now know that at least 3 of the vaccines under development offer substantial immunity to Covid-19 and their side effects are tolerable, we do not know how long the vaccine will protect us for and what the long-term effects are as yet. The therapeutics that will be used which were developed by Regeneron and Eli Lilly show very good efficacy if given early in the onset of the infection which should then keep those people out of the hospital as it will lessen the severity of the disease.
With these developments, despite the current impact of the sharp increase in virus cases both in the U.S. and in Europe, investors can now see the light at the end of the tunnel and a return to a more normal life style towards the second half of 2021.
In closing, we are positive on the stock market as both the election results and the vaccine and therapeutic developments should lead to a stronger economy in the second half of next year and a strong stock market as it will anticipate this. Though stocks are expensive, they are not expensive relative to the level of interest rates and expected growth. Once the economy gains strength, we could start to see interest rates rise which could potentially be a risk for stocks, but we feel that this is already well understand and is priced into current valuations.
I hope you all had a great Thanksgiving and holiday season. I look forward to catching up with everyone soon!