Season Two of 2020?

Does it feel like 2021 yet?

With the twists and turns so far, it seems like 2020 is dragging out into a second season.

As an American, I’m disappointed and wondering how political disagreements turned into excuses for violence.

As a financial professional, I know that politics, protests, and rioting in DC are just one-factor affecting markets.

Why did markets surge the day the Capitol was attacked?

While the world watched the events in DC, markets were quietly rallying to new record highs.¹

How is that possible?

I think it boils down to a few things.

1. Markets don’t always react to short-term events. Instead, they reflect expectations about economic and business growth plus a healthy dose of investor psychology.

2. With elections officially at an end, political uncertainty has dissipated.

The Democrats control the White House and Congress. What does that mean for investors?

If you’re like many people, when your preferred political side is in power, you are optimistic and are pessimistic when they aren’t.

That makes for a stressful experience every four years.

Fortunately, that’s not the case at all. Markets are pretty rational concerning politics and policy.

While businesses and investors generally dislike increased taxes and corporate regulation, the Democrats hold such slim majorities in the House and Senate that it limits their ability to pass many extreme policy changes.

The Democrats’ immediate agenda is very likely to be focused on fighting the pandemic and passing more stimulus aid, as demonstrated by the released details from the $1.9 Trillion proposed stimulus package.²

Does that mean markets will continue to rally?

No guarantees, unfortunately. With all the market activity and rosy expectations about the future, bad news or deteriorating economic numbers could see stocks go lower.

The bottom line is investors should expect more volatility.

The question on everyone’s mind is, what should I do about this, and what happens next?

What investors should do in this current environment are the same things we apply to our client portfolios.

1) Know your why- What are you trying to financially in your life? This is a unique set of goals that are developed based on your values.

2) Developing a plan- Built on your why, creating a financial plan that considers the varying degrees of ups and downs that investors will likely experience over their time horizon.

3) Constructing a low-cost, diversified portfolio- This portfolio is based on around the plan and its success, and not what we might think we happen over the next few days, weeks, or months.

4) Looking for opportunities to rebalance- We spent an extraordinary amount of time in 2020 reviewing accounts as the markets went down in February and March and were buying stocks for our clients. As the markets rebounded strongly, we have started selling the same positions for client accounts. Not based on our thoughts or feelings about what happens next, but to keep our client portfolios on the right track.

5) Stick with your plan- Unless things have changed for you personally, professionally, or financially resist the urge to make changes to your investments. If you want to make changes to get more conservative or aggressive just make sure that your plan still works.

In terms of what happens next, I wish I could tell you.

But in the words of the immortal Yogi Berra, “it’s difficult to make predictions, especially about the future.”

I’m hoping that the vicious, divisive politics will come to an end after the inauguration, but I’m not holding my breath.

I’m optimistic that the light at the end of the tunnel is getting closer, and we can start going back to normal.

I’m amazed at what scientists and medical professionals have accomplished in such a short amount of time.

I’m grateful for my family and the people around me.

I’m hopeful for the future.

Tax laws are likely to change under the Biden presidency. We don’t know exactly when they’ll happen or what they’ll look like, but I’ll be in touch when we know more.

Chris Kittrell is a Principal with Rather & Kittrell.

1 https://www.cnbc.com/2021/01/07/stocks-rally-to-record-highs-traders-on-whats-next-for-markets.html
² https://www.cnbc.com/2021/01/14/biden-stimulus-package-details-checks-unemployment-minimum-wage.html