Post Election and COVID-19 Virus: Update 5

By Walter Koon, , CFA® CFP® and Evan Fruits | | 11.19.20

Koon Financial Greenwood Bloomington Indiana

As we watch the events surrounding the Presidential election continue to unfold through November 2020, we are facing a sudden GLOBAL resurgence of the COVID-19 flu pandemic. The announcements about effective vaccines likely to be available to millions of high-risk people by the end of 2020 will help reopen economies all over the world. While we wait, though, the traditional end-of-the-year robust retail season will benefit on-line marketers and delivery services over brick and mortar stores and malls. Travel, leisure, entertainment, and restaurant industries continue to suffer the consequences of lockdowns and mandated restrictions. Even family gatherings are being discouraged. We view the “pandemic recession” as our primary concern as we begin to think about how investment markets will react during 2021.

Once the final results of the election are certified and the Electoral College completes its task, we believe we will be looking at a Biden-Harris Executive Administration. Congress, however, may well remain divided – depending on the Senate races in Georgia (the runoff election to be held in January). In this case, it is very likely that significant income tax legislation (corporate and individual) will be slow to materialize. Biden-Harris campaigned on restoring corporate income taxes to pre-2017 levels which would have a negative immediate impact on corporate profits and require an adjustment in stock prices, despite any economic growth that may occur as a result of economic expansion. As a result, we anticipate seeing stock prices react to economic reopening scenarios during the year, i.e., as sectors, regions, nations, and economies begin to recover and get back to work, stock prices will trend upward – we think through fits and starts. We expect to see a continuation of the volatility that has marked the past several years.

Over the next several weeks, through year-end 2020, we will be addressing the positions in our client portfolios to determine if any adjustments are needed. Each portfolio is customized to our client requirements and we consider several factors in assessing the appropriate asset allocation.

In the meantime, our initial look at 2021 have identified the following headwinds and opportunities:

  • COVID-19 related restrictions including mandated lockdowns, shutdowns, crowd limitations, travel requirements, quarantines, etc. – creating loss of jobs, income, goods and services.
  • Politically divided governments slow to react to and act on measures to offset the impact of low economic growth.
  • Vaccine availability – production and distribution limitations.
  • General global tiring of the new requirements and the limitations on travel and entertainment.
  • Vaccine availability – approval and immediate distribution of millions of effective doses.
  • An agreement on some form of fiscal stimulus to individuals, small businesses, and local governments. Infrastructure spending may be one approach to stimulate the economy.
  • International and emerging markets could be more attractive as trade agreements are expected to be more predictable under Biden-Harris.
  • In the current relatively low-income tax environment for individuals, we will continue to look to ROTH CONVERSIONS for positioning portfolios for the long-term.

We will remain focused on our clients' needs and requirements to implement strategies that take advantage of the opportunities presented to us over the year while maintaining a close eye on the risks.

We may not be able to control what the market does, but we can control the other factors of our financial life. Use this time to reassess the whole financial picture. As always, we are here and happy to help guide you through that process.