As you can see on your enclosed Performance Monitor, 2020 was certainly a good year for our wealth…if not so much for our health. As the market plunged day after day to a loss of 35% in March¹, who would’ve imagined it would melt up to the level it is today. 2020 is a stark illustration of why we need to be disciplined in our investment approach and maintain a long-term view. In addition to positive portfolio performance, our team has much to be grateful for.

Catherine

Though we all miss being in the office with our co-workers, this pandemic has allowed Catherine and her husband Mark to spend more time at the lake. As you can see from the picture on the first page, she has no complaints about the view from her “office”.

Carrie

The quarantine gave Carrie extra time to study for her Certified Financial Planning (CFP^®) certification. Though she was almost “over her head” in study materials, she is grateful to God for giving her grace to pass the 6-hour exam in November.

Malcolm

Malcolm is grateful to have a profession he enjoys and the ability to continue running the business from home. As it turns out, working from home isn’t bad at all. He has lost 7-8 pounds eating more of Judy’s salads…and no Philly Cheese Steaks from the building cafeteria. However, when the pandemic improves, he looks forward to some more Philly Cheese Steaks…and Judy looks forward to cooking less :)

Winning the Race

We now view the Coronavirus correction of last spring as a sharp blip in the midst of one continuing long-term secular bull market. However, in hindsight, some view it as the shortest bear market in history and believe what we enjoyed the past nine months is the beginning of a new secular bull market.¹ As is the case in a marathon, as runners move past the first leg of the race, the field of leaders begins to narrow and distance themselves from the laggards. We believe the 2021 lap of this bull market will be similar…, i.e. we will need to be more narrowly focused on the “winning” economic sectors and even more so on the right individual securities. We will also need to carefully manage taxable portfolios even more tax-efficiently with the possibility of higher capital gains taxes.

Though I would not be surprised to see a market correction at any time, below are a few reasons my long-term outlook remains positive and we once again recommend “staying the course”:

• Lower Costs: Continued innovation has lowered costs and therefore expanded profit margins. Back in the day, it cost more incrementally to make an additional widget. However, today because of technological innovation, the cost of an additional widget is often simply the cost of electricity. Robots don’t get tired and they don’t get sick. Therefore you can ramp up bottom line earnings significantly…even with relatively flat revenues.
• Low Interest Rates: Historically low interest rates continue to contribute to the attractiveness of stocks and can support higher price / earnings multiples.
• Cash Balances at Record High: With the market continuing to make new highs, some ask how the market could possibly go higher. However, as you can see in the chart on the left⁴, cash on the sidelines is STILL near an all-time high with $15.8 trillion in cash balances…a whopping 66% of nominal GDP.² We understand all of this money is not going back into the stock market, but great buying potential is there.
• Strengthening Economy: Fiscal stimulus, Federal Reserve monetary stimulus, infrastructure spending and widespread vaccine distribution this year should all strengthen the U.S. economy. As you can see from the chart below⁴, we also believe 2021 could be a strong year for emerging markets…particularly China and India.
  
• Strengthening Labor Market: There are currently 6.4 million jobs open right now ready to be filled, and our analysts expect an unemployment rate around 5% by year end.2 Even now, although overall unemployment is 6.7%, unemployment among college graduates is only 3.8%.³
• Earnings Growth: As you know, earnings are the “fuel” of the market and we are likely to see a powerful earnings rebound of 20%+ in 2021.²
• Attractive Valuations in Technology: After such strong performance in the technology sector over the past year, some are concerned about a “tech bubble”. However, Information Technology and Healthcare have seen the strongest earnings per share growth throughout the pandemic. In addition, 64% say they plan to spend even more on technology in 2021.² So, we believe the technology sector actually presents some of the best values because of their tremendous earnings growth potential.
• Pent-Up Demand: Spending on social events such as eating out, going on vacation, and attending sports events is still 20% or more below pre-pandemic levels.² As you can see from the chart below⁴, 65% plan to travel more than they did pre-Covid because of pent-up demand.1 So, we expect to see a boom in services as the vaccine starts to take effect.

Time Not Timing

Since most believe we are due a short-term correction, some may ask about the wisdom of raising cash. However, the chart below⁴ illustrates the dramatic difference in results if one misses even five of the market’s best days. Because of this and the low probability of both getting out and getting back in at the right time, we recommend staying fully invested with an asset allocation that fits your risk tolerance.

May you have a joyous, blessed and fruitful 2021. We covet your prayers for knowledge and understanding in making wise investment decisions. Thank you for your prayers and your trust. We love you and appreciate you.

Malcolm C. Tarver, III
Senior Vice President, Investments
Certified Investment Management Analyst ®

¹MarketSmith Charts, Investor’s Business Daily

²Larry Adam, Raymond James, January 11, 2021

³Phil Orlando, Federated Hermes, January 2021

⁴Raymond James, Investment Strategy: Fact Set, 12 31/20

Any opinions are those of Malcolm Tarver and not necessarily those of Raymond James. The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete. Expressions of opinion are as of this date and are subject to change without notice. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal. Past performance is not indicative of future results. There is no assurance these trends will continue or that forecasts mentioned will occur. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Dividends are not guaranteed and must be authorized by the company's board of directors.