Gill Capital Partners Thanksgiving Update
It is nearly Thanksgiving and, even in a year like 2020, we have much to be thankful for. The team at Gill Capital Partners is incredibly thankful for all of you. We feel fortunate for the relationships we have with our clients, friends, and colleagues. Thanksgiving, like everything else, is going to look a little different this year. For many, the unsettled nature of the plans for what is generally a holiday full of tradition seems to be a metaphor for the general state of the world. While Thanksgiving may not look and feel like what we all are accustomed to, we hope everyone is able to connect with friends and family in some form or another this year. There is certainly no shortage of things to talk about, from a chaotic and unsettled political backdrop to cross currents with the pandemic and swiftly moving financial markets. We will get into all of those, but first, a little humor.
We hope your thanksgiving table is peaceful this year….
Election Update – While the electoral college has yet to certify the election and a handful of legal challenges remain, markets are gaining more clarity around the likely outcome of the election. The market continues to operate under the assumption that we will have a divided government with a democratic controlled White House and a split Congress. All eyes will be on runoff races in Georgia that will ultimately decide the control of the Senate. However, the market sees fairly low odds that Democrats will sweep both Georgia races and gain control of the Senate and is therefore positioning around a divided Congress. The market seems to like this outcome, at least for now. There remains some risk that political and legal wrangling could result in contested elections or even dueling inaugurations. However, it appears that the market believes these are extremely low probability events.
Pandemic Update – Vaccine Optimism and Virus Resurgence
The Northern hemisphere is, unfortunately, experiencing the long-predicted seasonal spike in COVID-19 cases. As shown in the chart below, provided by Goldman Sachs, the rise in positive cases across different regions globally is in full swing.
Hospitalizations are also on the rise, and in many regions have eclipsed levels from the spring.
With cases and hospitalizations at critical levels in many areas, restrictions are being put back into place. An economy that was just beginning to heal is once again being thrust into lockdowns and restrictions. This will most certainly impede the economic recovery and prove very difficult for businesses that are struggling to survive, particularly those in the service and travel and hospitality industries. High frequency data, which captures real time data, supports the likelihood of a slowing economy in the near term. As shown below, courtesy of JPMorgan, various data points that were beginning to recover are now rolling back over, such as hotel occupancy, travel, in-restaurant dining and navigation app usage (yes, every time you enter driving directions on google maps that data is collected!).
The lone bright spots at the moment appear to be mortgage applications and debit/credit card transactions. Consumers are refinancing their mortgages at a feverish pace in this historically low interest rate environment, and credit card spending is still holding up. Positive vaccine news over the past two weeks has propelled markets to near-term and, in some cases, all-time highs. Strong results from two different phase 3 trials have generated a sense of optimism that life will return to normal at some point.
Our view – The market has seized the vaccine news as a silver bullet of sorts and has quickly priced in the economic growth we would expect to see with the reopening of world economies. The market seems to be looking past the impending economic slowdown driven by rising cases and associated restrictions and looking farther into the future, hopeful for a return to normal in 2021. We are concerned that in the near term, the market is susceptible to disappointment, as we anticipate a slowing economy in the coming weeks and months. Gridlock in Washington means any future stimulus may be too little and too late for many businesses. Further, we do not believe that the market is fully considering the lengthy timing, complexity, and operational hurdles (extreme cold storage, staffing, multiple doses, etc.) associated with delivering a vaccine to the global population. However, it is clear that the market can see light at the end of the tunnel, both for the pandemic and the unsettled political environment, and that optimism is reflected in stock prices.
We hope everyone has an excellent weekend and a happy Thanksgiving, whether that be in person, via Zoom, or outside. Stay healthy and safe.
As always, please let us know if you have any question or concerns, or if we can provide assistance with any other financial planning matters including education, taxes, insurance or estate needs.