James E. Mayer:
It feels like we've been living in election season forever with essentially no break between the democratic primary and the general election it has now been over a year and a half of campaigning, debates, political ads.
We think it is now safe to say that the Democrat party has kept control of the House of Representatives and won the presidency. And the Republicans have managed a tie or better in the Senate. We say tie or better because, of course, a couple of Senate races were too close to be decisive. Both of the Georgia Senate races are headed to a runoff election after no candidate managed to win 50% of the popular vote. To us, this feels a bit like finishing a marathon only to find out that you are now being chased by a pack of wolves. Off we go again. So until January 5th, the country's attention will be focused on the state of Georgia where Republicans just need to defend one seat for Senate control. Their campaign could be "One of each would be a peach." Seriously, though, regardless of anyone's political preferences from a historical perspective, markets have actually preferred a divided government.
Why? Simplistically, we think it is because a stalemate between the two parties means less change. Uncertainty decreases and companies and people get better at operating within the current rules the longer they are in effect. Whether you were worried about higher taxes or more tariffs going into the election, you have a lot less reason to be concerned today, even with worse COVID-19 news in many States the week following the elections has been positive for most stocks and slightly negative for longer term bond prices. This seems to support the view that a political stalemate can be a good thing for investors.
Politics aside. We think the next few months could be challenging from an emotional and investment standpoint. The increase in COVID-19 cases is likely to hasten around another round of stimulus, smaller than what was passed in March of 2020. Looking past this winter, we see many reasons to be optimistic. Corporate America is relatively healthy with 85% of companies reporting better than expected earnings for the third quarter of 2020. The Fed is considering increasing its own bond purchase program in the near future, which should help support bond prices and liquidity until the economy is back to normal.
Most importantly, some top pharmaceutical companies recently announced they have developed a vaccine with 90 to 94% effectiveness against COVID-19. One firm expects to produce 50 million doses of the vaccine by the end of the year, with an additional 1.3 billion doses during the next.
With all that is going on this year, we know it can be overwhelming. Please call the office to schedule a time for a Zoom or to talk about how all this impacts your current situation. Thank you for watching. Stay safe, stay happy, stay healthy, and hopefully we'll see you soon.