What Lies Ahead
Lately, it seems like our lives are somewhat synonymous with that of a focus puller. What’s a focus puller you might ask? Well, they have quite possibly one of the hardest jobs on a movie set. Their sole responsibility is to change the focal point of a camera, making sure that every moment is shot with the exact focus the director intended. As you can imagine, the focus puller works hard to ensure the audience maintains a clear, crisp view of scene as the dynamics continually change. I’m sure you can see where this analogy is heading.
We’ve all spent the better part of this year trying our hardest to “pull focus”. The shifting landscape of the virus, the election and the economy has made it next to impossible to bring our realities into some sort of focus. Well, later today maybe be the first step in providing us with a clearer view.
A few weeks ago, we talked about potential policy scenarios that different presidential election results may bring. Trying to shed light on the relevancy of politics on portfolios. To reiterate what was stated last time, we concluded that political policy has far less ramification on markets than economic circumstances. As we found before, political issues tend to be short lived, and have very limited, if any, effect on long-term market performance.
With that said, there are still a variety of other events and circumstances that could impact markets. And, at least in the short term, tonight may hold some influence.
Now before we go any further, the potential outcomes we are about to describe are significantly more short-term in nature. We can’t stress enough the importance of zooming out and looking at this through a wider lens. We know, enough with the film analogies, we just can’t help ourselves. But, in all seriousness, we want to stress the importance we’ve placed lately on proper diversification and disciplined investing, and how that will lead us through volatile times. Put another way, we’ve taken stock in your specific phase of the financial journey. Are you taking distributions? Are you approaching the retirement phase? Or are you still well into the wealth building phase? These all present a variety of different dynamics, and we’ve made the appropriate adjustments by rebalancing throughout the year. For those still troubled by what lies ahead in the coming days, weeks and maybe months, take solace in our shift in positioning to bonds and cash to protect your portfolio and ensure the availability of money for distribution. We won’t belabor the point, but we have also shared in our email a video Bob did a few months back. It serves as a good reminder, especially during uncertain times.
So then, what might lie ahead in the coming weeks and perhaps months?
As we wait for a vaccine or therapeutic, there has been a steady demand by analysts, and an insinuated demand by markets, for Washington to provide some sort of fiscal aid package, or stimulus. The sentiment, at least among analysts being that a follow-on aid package is necessary to continue the pace of recovery. This is a bit self-serving in the fact that additional stimulus will serve to accelerate growth in markets over the short term. But, none-the-less, the demand is apparent.
So, what does tonight have to do with stimulus? The conclusion of the election, or lack-there-of, could indicate the time frame in which follow-on stimulus will occur. For now, we’d prefer to plan for the late January scenario, and be surprised to the upside. Here are three scenarios we’ve seen proposed:
Scenario #1 – Trump Re-election
This result will likely give the President power over Republican Senators to push through a higher aid package. This result may have the highest probability of a deal getting done before next year. But, with that said, we’ve seen how negotiations have failed thus far, so we could still be waiting for January 21st, before we support from Washington.
Scenario #2 – The Blue Wave
This will likely result in a significantly larger stimulus package, maybe even in the realm of $3 trillion. But, the likelihood of that being accomplished prior to January 21st seems slim. The probability comes down to the actions of a “lame-duck” President and outgoing lawmakers to pass legislation, which seems low.
Scenario #3 – A Contested Election
This will serve as a major road block in progress, as it relates to addition fiscal aid. Both sides of the political aisle will likely be far more-entrenched in the fight over election results. This would leave little time to finalize negotiations of further aid.
These scenarios, albeit may have varying impacts on the short-term moves in the market, they lead us to plan for the same result as stimulus is concerned. Maybe, we’ll have stimulus in time for the Superbowl.
