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Economic Normalization on the Horizon

Posted by Michael Aloian on Dec 3, 2020 10:00:00 AM
    

I hope you had a wonderful Thanksgiving! I thought I would summarize the financial markets briefly as we go into the last month of the year:

During the month of November, the S&P 500 Index jumped 11% on the expectation of improving economic conditions next year. The index is signaling that the U.S. will reach economic normalization in 2021 due to the development of several COVID vaccines, a likely deferment of further trade wars, a potential stimulus package, and a divided government.

The rising number of COVID cases this winter is a concern, but is being counterbalanced by the news of the 90%+ efficacy of several newly discovered vaccines. With the imminent approval, manufacture, distribution, and inoculation process, the market is anticipating better employment growth, improving revenues and profits, and slightly higher interest rates. The prospect for a divided government is also helpful, since the balance of power decreases the likelihood of new restrictive legislation or taxation. The Georgia senate runoff elections are certainly a consideration for the markets to monitor, but the probability is that the government will continue to be gridlocked.


The market is having an internal rotation between growth and value stocks, with many Wall Street Strategists indicating that small caps, deep cyclicals, and international stocks will finally take leadership from the large-cap growth stocks. After underperforming since the start of the year, small caps, industrials, and basic materials are doing better recently; however, there is great investor skepticism of this rotation. We have a combination of growth and value stocks in clients' portfolios. so the holdings will benefit from these evolving changes. The weakening dollar and relatively low interest rates should help U.S. multinationals sell more to international clients. International and Emerging Markets may perform better, but many of the energy producing countries and those with troubled banking industries are going to have further challenges. We remain underweighted in international allocations, but are considering selective investments outside the U.S.

Wall Street strategists and investors are optimistically raising the new S&P Index targets to 4000-4600 for year-end 2021. This would indicate that the market has potential to move 12-25% higher. Some strategists indicate that excess consumer COVID savings could unleash a “growth bomb” for the economy, which may finally drive interest rates higher. With interest rates remaining low and stable with little inflation, this growing consensus of optimism could continue to lift valuations even after a strong November.

Index Total Return Year-to-Date
S&P 500 Index: 12.1%
Mid Cap Index: 5.1%
Russell 2000 Small Cap: 9.1%
MSCI AWCI International: 9.4%

Best,

Michael Aloian

Investments are not a deposit or other obligation of, or guaranteed by, the bank, are not FDIC insured, not insured by any federal government agency, and are subject to investment risks, including possible loss of principal.

Posted by Michael Aloian

Michael oversees the people and policies of the Trust and Investment Management Services Department and manages the individual investment holdings of Crews Bank & Trust’s Trust clients. His clients include individuals, families, foundations, and institutions throughout the state of Florida.

Michael's education includes:
Bachelor of Arts in Economics, Harvard University, Cambridge, MA, 1982
Investment Portfolio Manager and Research Analyst since 1983
Graduate of the Florida Bankers Association Trust School, University of South Florida, Tampa, FL
Series 65 - Registered Investment Advisor
Series 52 - Municipal Securities Representative

Board member:
Florida Bankers Association, Florida Bankers Educational Foundation
Member, CFA (Chartered Financial Analyst) Institute

Michael serves on the Tampa Bay Committee on Foreign Relations and is a member of the CFA (Chartered Financial Analyst) Institute. He is immediate past-chairman of the Board of Directors for the Historic Bok Tower Gardens in Lake Wales, for which he now serves on the Investment Committee. He is a former president of both the Harvard Club of Central Florida and the Harvard Club of the West Coast of Florida. Michael is a 2005 Graduate of Leadership Tampa Bay. I