On the margin, we are bullish on the outlook for 2021. There will be bumps, bruises, changes in the timeline but, overall, 2021 will end as a beginning of the return to normality, and that should play well for the financial markets.

I intend to stay awake this New Year’s Eve. Not so much to welcome in 2021 but to make sure 2020 fades into oblivion. I would like to say that 2021 will be a better year but that would be redundant. It is hard to imagine it being any worse!

What I can say is 2021 may be better than many base case scenarios are suggesting. Bay and Wall Street watchers are cautiously optimistic, once we get through North America’s dark winter. It is clear, as COVID waves intensify, that a return to normalcy will rest on the efficacy of the vaccine. Which, by the way, some 40% of Americans say they will not take!

According to most polls, former Vice-President Joe Biden has a commanding – almost insurmountable – lead as we enter the last four weeks of the US Presidential election. Some have gone as far as to suggest we will see a blue wave where the Democrats not only take the Presidency but also Congress and the Senate.

From our perspective there are two main factors influencing financial markets: 1) the seeming disconnect between market performance and economic reality and 2) the impact of the US Presidential election with potential constitutional challenges that go beyond who wins or loses.

We will explore these issues in our commentary and share some of diversification techniques intended to protect client portfolios within the context of the long-term economic realities and the potential presidential outcome.

You can be excused for thinking that equity markets have gotten ahead of themselves. As of the close of trading on Monday June 8th, 2020, the S&P 500 composite index had recovered all year-to-date losses. Even more impressive was the performance of the NASDAQ 100 stock index which set another all-time high. That was, of course, before Thursday’s sell-off that highlighted the fragile foundation underpinning equity markets.

Professional money managers look at investments in terms of risk versus return. Hence the concept of risk-adjusted return, which is the central theme underpinning portfolio management. However, that is very different from the way most individuals look at investments. Investors understand return because it is quantifiable. It is simple math. Risk not so much!

Forecasting is about establishing scenarios and assigning probabilities. While difficult at the best of times, developing a rational thesis on the back of COVID-19, is all but impossible. We are confronted with a new virus that has no boundaries and for which epidemiologists have yet to understand its genetic code. As curves flatten around the world, there is concern about a second tsunami in the autumn and the possibility of interim community transmission spikes that could last until 2021.

President Trump wanted to re-open the US economy by April 12th because postponing a return to normalcy “could make the cure worse than the disease.” He eventually backed off at the behest advisors. But he was right about the need to strike a balance between the carnage caused by an economic shutdown versus lives lost to the coronavirus.

We fear what we do not control and what we cannot explain. Dramatic headline powered gyrations in financial markets, escalating infection rates, varying pandemic trajectories and response protocols delivered by a politically biased 24-hour news cycle.

What about the future? How deep is impending recession? How long will it last? What are the long-term implications of the unprecedented fiscal and monetary stimulus? And when will the stock market bottom?