SUMMARY. News of successful vaccine trials as well as "perceived" lessened political risks has prompted a continued shift from value oriented companies tied to a cyclical reopening of the economy vs growth (ie technology). Optimism is running high on a return of economic growth in 2021 with many of the potential negatives being ignored, of which maybe higher interest rates/ inflation, continued election uncertainty and slower growth tied to tax/regulation policy and waning fiscal stimulus exiting 2021. We continue to expect better growth in 2021 as potential fiscal stimulus resumes and covid-19 wanes with many of the negatives coming into play as we move into 2021. We continue believe past the period of covid-19 recovering & fiscal stimulus (ie late 2021) the long-term growth potential of the US economy REMAINS VERY LOW (0-2%) especially in light of potentially higher taxes & regulation.
INVESTMENT IMPACT. Although we continue to be positioned for better economic growth in 2021 particularly in 1H21 we are growing concerned about valuations, high levels of optimism and the potential for growth headwinds in late 2021 & beyond. Those headwinds may begin to weigh on returns in 1H21 going into 2H21 & beyond. We have begun reducing equity exposures in our Income oriented models first (given many are tax deferred) to reflect these concerns while only making minor changes (for now) to the growth oriented models.
Our model portfolio performance has been updated on our website as of 11/02/20.
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