Fourth Quarter 2020 – This newsletter is written after the presidential inauguration.
The fourth quarter of 2020 was continuing the significant bounce back in the second half of 2020. Small companies made a major move as shown (DFSTX). Big technology led large US companies. (DFUSX). Large US companies had the best 1-year and 3-year returns. International finally recovered (DFIEX) bringing the 1-year and 3-year into positive territory. Real estate (DFREX) also made headway bringing the 3-year positive. The bond investment (PIGIX) did well in all three periods, as expected. And the blended investment of 60/40 (DGSIX) was consistent.
What’s ahead for the market – Investment returns are dependent upon sales, earnings and growth prospects, heavily influenced by the COVID-19 pandemic. The positive returns in the fourth quarter reflected optimism in the market that the vaccine was here and better days lie ahead. Businesses tend to take a long-term view and look at trends and direction regarding the virus. Politicians seems to focus more on the news cycle, the next election and their political party. Unfortunately, political posturing around handling the virus has seriously delayed any positive progress.
An impeachment trial is pending, capturing major hunks of Congressional time. The elections increased Republican seats in the US house, state legislatures and governorships. The US Congress is narrowly controlled by Democrats. Usually, a narrow majority results in little legislation and regulation changes and is generally favored by the market. The market expectation is vaccinations will accelerate and employment will increase by the end of 2021.
The issues – The US has experienced major turmoil in 2020 and 2021 in both social protesting and the elections. A large percentage of our population do not trust our government systems and a majority of the population do not like the directions of the country. We have a growing income and wealth disparity:
· The top 10% have annual AGI of $133k; the bottom 50% less than $38k – (IRS)
· 87% of stock market securities are owned by 10% of the population (Barron’s)
· Only 44% of the population can afford a first home. Currently 62% of the population are home owners. (Barron’s)
We need education equality before we can achieve income equality.
Michael’s example – Michael’s grandfather was an Irish immigrant who came to the US in 1905. Both he and his wife had a 6th grade education. Their three girls graduated high school and one, Michael’s mother, earned a master’s degree in education. The daughters’ group of eight children all went to college with three having master’s degrees. Education produced prosperity.
Companies are more focused on ESG (environmental, social and governance) and are implementing programs addressing the concerns because it is simply good business. Tremendous opportunities lie ahead worldwide. The market may be ten years into a fifty-year bull market. Policies are needed that allow all citizens to enjoy prosperity.