The dominant consideration for next year remains the question of the Covid-19 pandemic and how quickly the US can start to see progress in reducing the number of infections, hospitalizations and deaths.
A major challenge will be vaccinating a majority of the population safely. In combination with the number of people who already have been infected, the vaccine rollout and progress in antiviral treatments provide hope that at some point in 2021, society will start to return to normal.
How long will this take? It may be four, six or nine months or even a year. It’s anybody’s guess in my view.
From a market perspective, as investors see improvement on the Covid front, in my view, investor sentiment will change. In my opinion, the stay-at-home and closed-economy corporate beneficiaries will have more competition from businesses that benefit from a more normal society.
In my opinion, we could see quite a bit of change on the interest rate front and potentially with inflation. In that scenario, bond yields will become more volatile, especially at the long end of the curve. Bond volatility will bring heightened equity movement as well.
How does one prepare their portfolio for these kinds of circumstances? If you have a well diversified structure, which means a variety of industries and companies, your ark will handle the pandemic rain quite well.
If you are relying on what has worked for the last year, or maybe the last decade, you might think about where you have a lot of risk exposure.
Markets change, and it can happen quickly. What worked for the last ten years may not do so well in the decade ahead. Build your ark accordingly.