Once we are through the pandemic, researchers will do a financial assessment on 2020 to calculate the full economic toll on the global economy created by the COVID-19 virus, and we promise the number will be staggering. Aside from the terrible loss of lives, the economic impact will conservatively cost trillions of dollars at this stage, and it continues to increase by the day. Should a vaccine set the stage for a continued economic recovery, it is inconceivable that the world won’t face financial repercussions given the amount of debt deployed at so many levels. While consumers are in decent financial health today, expect higher personal taxes to initiate one of the next great wealth transfers back into the hands of those that hold the debt – namely sovereigns. We believe that 2021 will be another year of tough choices – although of a different kind than those in 2020.
The financial market recovery has been as rapid as the decline, elevating many global equity indices to where they started the year – the exceptions being the Nasdaq to the upside and value stocks to the downside. In this Outlook, we reduce our view on both U.S. large and small caps back to Neutral after our upgrade to Favorable only a quarter ago. It would be unusual for us to change our views after a single quarter, but nothing has been deemed “usual” in 2020. Because of the dominant performance of U.S. equities during the quarter, we naturally find portfolios underweight international and emerging market equities. Accordingly, we recommend investors rebalance abroad.
2020 has been nothing short of a grind and has us all feeling a bit older and worn. Despite the wear, we all should be more optimistic today than we were several months ago and take comfort in knowing that we are much more educated about the virus and there are vaccine and therapeutic solutions on the horizon. Between now and then, we encourage everyone to social distance, wear masks, and support one another however possible.
Your Edge Team