4th Quarter 2020
“Alice had begun to think that very few things indeed were really impossible.” – Alice’s Adventures in Wonderland, Lewis Carroll
2020 was a year that will not be easily forgotten. On one hand, the coronavirus was a dominant part of the news flow and it is still a very tragic and certainly not contained in the first part of 2021. As we write, global deaths have surpassed two million and US deaths have exceeded 400,000.
The year has also been inspiring. We have witnessed selfless acts by our frontline and essential workers. As we begin 2021, they are still bearing the heavy weight of excessive hospitalizations. As we conveyed in our 2nd quarter letter, researchers around the world worked to solve the puzzle of this virus and created three available vaccines within the space of a year and a fourth may publish positive results by month end. We hope that their rollout may help life to return to something close to normal by year-end.
“I always thought unicorns were fabulous monsters, too?” – Through the Looking Glass, Lewis Carroll
The tail end of 2020 witnessed a myriad of initial public offerings of companies with very high values and little to no earnings (unicorns). A prior unicorn, Tesla, which now makes a little bit of money, joined the S&P 500 in December of 2020. To understand its potential overvaluation, consider the following. Tesla’s market value as of 1/15/21 is $798 billion. The combined market value of GM, Ford, Toyota and Honda is $401 billion. Tesla made just shy of 500,000 automobiles. GM, Ford, Toyota and Honda manufactured 28.9 million – 60 times the output of Tesla (Toyota also makes 1.5 million hybrids each year).
She generally gave herself very good advice, (though she very seldom followed it).” – Alice’s Adventures in Wonderland, Lewis Carroll
2020 was also a year that tested every investor’s resolve concerning staying invested in the stock market. At its nadir, the world looked like it was grinding to a full stop and hopes for any economic activity seemed slim. A survey by MagnifyMoney, a division of LendingTree, found that 42% of investors sold part of the stock holdings and 24% sold all. As we have stated in the past, the return that an investor makes on their portfolio is likely to be dominated by how they react to one or two events in each decade.
Our forward outlook, based on a loose survey of market strategists that we respect, is mildly constructive based on the rollout of the vaccine and the economic opening that will result. The current resurgence of the virus presents a significant headwind but expectations for a recession remain low. The government programs to combat the virus have left consumers in the US with an estimated $1 trillion in additional savings – although this has not been equally distributed. Savings rates in 2020 have been up to 3 times higher than normal.
With more policy response expected by the incoming Biden administration and continuing accommodation by global central banks, the tailwind of fiscal and monetary policy combined with excess savings and vaccine induced spending may buoy the economy and stock markets in 2021. With valuations at the higher end of historic norms, return expectations should remain modest.
We Are Here, Virtually
While we are still not meeting with clients face-to-face, we are meeting virtually so please do not hesitate to contact us with any questions regarding your account. We can video conference and share screens.
Further, if your financial circumstances have changed, please call the office to set up an appointment to review your plan. We thank you very much for the trust you have placed in our firm.
Shoreline Financial Advisors, LLC