The New Year is here thank goodness. Everyone wants to put 2020 and COVID-19 behind us. The vaccine is being distributed (albeit slowly) and additional pharmaceutical manufacturers will be releasing more vaccines in the coming months. Hopefully, we will arrive at “herd immunity” soon (this summer?) and we can at that time return to somewhat normal living. We get a new President sworn to office in 9 days and recent U.S. Capital unrest and violence has many investors wondering what is the right approach for their portfolios moving forward. I will address this issue in this letter. First, I want to bring your attention to our website: lwpreno.com. Under the trending topics tab you will see our Market Signals Podcast that you can listen to and/or download and read our Outlook 2021: Powering Forward, by our LPL Research team. I recommend these two information sources highly for investors who would like to know LPL Research’s forward view.

Until the arrival of the mid term elections in 2022, Democrat’s will have control of both chambers of Congress. While there is a material difference between the Senate flipping to Democratic control and Republicans holding the Senate, LPL Research does not think it will be a radical shift. The Democrats Senate majority will be razor thin, with the Senate split 50 – 50 and Vice President Elect Kamala Harris casting any tie breaking vote. With such a narrow margin, eliminating the filibuster is basically off the table. On many key legislative issues, each party would still need to muster 60 votes. The markets know these rules and with the House of Representatives also narrower in its majority (222-211) a similar challenge exists.

I am never political in these newsletters. Like the country, I have clients of many different political persuasions. My job is to look at the facts and the probable outcomes.  Historically, which party has controlled the White House hasn’t had a meaningful impact on market performance. Markets tend to prefer divided governments, because this tends to remove the extremes and/or encourages a spirit of compromise. Unlike what many people think, when Democrats have held the presidency and controlled both the House and Senate, market performance has been generally in line with longer-term historical returns. The distribution of power in Washington, DC, by itself does not mean a lot, especially since voters have the chance to change the balance of power every two years.

What will matter in the future is stimulus, taxes and regulation. Improved stimulus may encourage rotation toward areas of the market that may respond positively to economic reopening. Higher taxes may make municipal bonds more attractive and slow some economic growth. More regulations raise questions on the effect, but LPL believes the most important market driver will likely be the global response to COVID – 19 and the momentum of the still young economic recovery.  – Mark

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. No strategy assures success or protects against loss. Economic forecasts may not develop as predicted. Some of this research material has been prepared by LPL Financial. All indices are unmanaged and may not be invested into directly. Referenced material: LPL Research Weekly Market Commentary dated January 11, 2021. Approved Tracking #: 1-05098912.