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Focus on the “Known Knowns”

By Deron T. McCoy, CFA®, CFP®, CAIA®
Chief Investment Officer

After a historic week in a historic year marked by uncertainty, U.S. citizens started to gain a bit more clarity on what 2021 has in store. The obvious elephant donkey in the room was the delayed results of the presidential election with Joe Biden being announced as president-elect. To add to the clamor around the presidential election, news broke that Pfizer’s potential Covid vaccine had a higher efficacy than was hoped. While not finalized, as more testing needs to be done, it is great news and a substantial feather in the cap for an industry that normally takes years to develop an effective vaccine.

However, one could argue that the election still must deal with pending litigation and that the vaccine still has to make it through final testing. And one can even point to the uncertainty around the makeup of the U.S. Senate as we likely will not know which party will control the upper chamber until January run-offs in Georgia. These known unknowns (and possible ‘unknown unknowns’ to borrow a phrase from former Secretary of Defense Donald Rumsfeld) are all fluid and could change in a heartbeat—especially in a year like 2020. Even this article may be wildly outdated in just a few days’ time. But investors need not dwell on the unknowns. Instead, we can focus on what we do know.

As of November 6th, the ‘blue wave’ seems to have been vastly overestimated by both the pollsters and the stock market itself. Instead of a blue wave resulting in 52+ Democratic Senators, Congress appears to be split. True, Democrats still have a shot of controlling the Senate—but by the slimmest of margins. And with many of these Democratic Senators in battleground states, it seems unlikely that all would back the implementation of a ‘too progressive’ agenda. A larger ‘blue wave’ margin would have been needed to give these swing-state Senators some cover. While we can continue to debate the election’s effects on the planet, on income inequality, and the right to healthcare, for investors the results appear to be good news as a split government (or a Democratic sweep by the thinnest of margins) will probably remove from the table many of the most radical climate, tax, and healthcare policies that both U.S. corporations and investors feared.

The takeaway? Combine the lack of a blue wave (removing the imminent threat of new government policies that could threaten corporate earnings) with a Biden victory (removing the threat of waking up to a new trade-policy-by-tweet), and it suggests that next year just might be a year we can all to get back to ‘normal’ and start refocusing on the mundane things investors love – corporate and economic fundamentals. While the next few weeks may still be shrouded in uncertainty, looking further out into 2021, regardless of whether you view Washington DC through a red or blue lens, investors finally have a bit more clarity.

The information contained herein is for informational purposes only and should not be considered investment advice or a recommendation to buy, hold, or sell any types of securities. The information contained herein was carefully compiled from sources SIA believes to be reliable, but we cannot warrant or guarantee the accuracy or completeness of the information provided. SIA is not responsible for the consequences of any decisions or actions taken as a result of the information provided herein.

Signature Investment Advisors, LLC (SIA) is an SEC-registered investment adviser; however, such registration does not imply a certain level of skill or training and no inference to the contrary should be made. Securities offered through Royal Alliance Associates, Inc. member FINRA/SIPC. Investment advisory services offered through SIA. SIA is a subsidiary of SEIA, LLC, 2121 Avenue of the Stars, Suite 1600, Los Angeles, CA 90067, (310) 712-2323, and its investment advisory services are offered independent of Royal Alliance Associates, Inc. Royal Alliance Associates, Inc. is separately owned and other entities and/or marketing names, products or services referenced here are independent of Royal Alliance Associates, Inc.