MARKET INSIGHT MONTHLY - United Bank
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MARKET
INSIGHT
MONTHLY
“In the short-term, the market is a popularity contest. In the long-term, the market is a weighing
machine.” -- Warren Buffett
We thank you for your continued faith and trust in United Wealth Management and our ability to interpret
the financial world. We have attached our Market Insight Monthly update for your review. Each month we
provide a markets overview and highlight topical themes which have played a significant role in market
activity.
With a new U.S. Administration in place, 2021 is well underway as our nation and the rest of the world look
to put the global pandemic behind us. The path forward for the US economy, as well as that of the global
economy, will continue to depend heavily on the success of combatting the virus.
While many of the challenges presented by the outbreak of COVID-19 persist, we have noticed several
indicators that suggest we may be in the later innings of the pandemic:
• Following increased restrictions to quell the holiday surge, new daily COVID-19 cases and
hospitalizations have peaked and are down significantly the past few weeks, according to the
COVID Tracking Project.
• The distribution of currently approved vaccines is well underway, and accelerating. The CDC
reports that the United States has added over 1 million shots per day over the past weeks and 1.5
million per day is possible very soon.
• New vaccine candidates from Johnson & Johnson and Novavax have shown efficacy in combatting
the effects of the virus and new mutations. If these two candidates are authorized for use as most
experts expect, the boost in supply will be a welcome development in the US and abroad.
While these are certainly positive trends for the COVID-19 landscape, unrelated volatility began to return to
the stock market in the final days of January, as retail traders set their eyes on GameStop (GME) stock
and other heavily shorted securities. As Warren Buffett explained above, while many of these securities
may be momentarily popular, the real winners will be investors with longer-term horizons. We do not
believe this type of activity will have any pronounced effect on the market as a whole.
After the powerful snapback of economic growth seen in the third quarter, the economy continued to grow
at a solid 4% in the fourth quarter despite the winter surge in COVID-19 cases. This improving economic
backdrop has provided tailwinds to corporate profits, which should help stocks grow into their valuations.
With approximately 75% of the S&P 500 companies reporting for the fourth quarter, just less than 80%
have beaten earnings estimates, according to Standard and Poor’s.
The improving economic backdrop, along with US government and Federal Reserve policies designed to
boost the economy, suggest the environment for risk assets may remain favorable in 2021. However, the
S&P 500 Index has now rallied more than 75% since the March 2020 lows, so some volatility would be
perfectly warranted.
As always, United Wealth Management looks forward to actively evaluate market risks on your behalf. We
stand ready to act and take advantage of opportunities when they arise. We welcome your calls and
correspondence so that we can continue to offer exceptional service and provide our latest thoughts on the
market and your financial well-being. Stay healthy and please contact us with any questions.
Sincerely,
Your United Wealth Management TeamMARKET
INSIGHT February Update
MONTHLY MONTHLY COMMENTARY
Due to our optimistic expectations for US economic growth and corporate profits, our equity
outlook remains positive. Prospects for additional fiscal stimulus, recent progress in reducing
COVID-19 cases, and the ramping up of vaccine distribution underpin and confirms our optimism. A
strong earnings rebound may enable stocks to grow into somewhat elevated valuations. There is no
change to our 10-year Treasury yield forecast range for 2021 of 1.25–1.75%.
INVESTMENT TAKEAWAYS
Our equities positioning remains favorable. We continue to favor stocks over bonds for clients with a higher risk
tolerance. This is based on our expectation for a strong economic and earnings recovery in 2021, supported by
prospects for additional fiscal stimulus, continued progress in combating COVID-19, and the likely continuation of the
low-rate environment.
Key near-term risks include potential delays in the COVID-19 vaccine rollout and possible variant viruses, potential tax
increases (unlikely until 2022), and tougher regulations under a Democratic-controlled Congress.
As the economic recovery progresses in 2021, we would expect cyclical stocks to get a boost.
We expect solid economic growth across Asia to support continued outperformance by stocks in emerging markets
(EM). EM may garner additional support from potential easing of US-China trade tensions, although ongoing
geopolitical and regulatory threats may lead to bouts of volatility.
While Federal Reserve (Fed) policy and manageable inflation may limit the risk of a large rate move, rising rates may
still put some pressure on bond returns while economic improvement may help support equities going out a full year.
Modest inflationary pressure might warrant a hedge on rising interest rates.
We favor a blend of high-quality short to intermediate bonds in our fixed income allocation.
BROAD ASSET CLASS VIEWS
Views on Stocks, Bonds, and Cash
Negative Neutral Positive
Stocks
Bonds
CashEQUITY ASSET CLASSES
Overall Relative
Sector View Trend Rationale
The relatively greater financial strength enjoyed by most large cap companies has
helped during the pandemic. But smaller market cap companies tend to perform
Large Caps
better early in economic expansions and during the early stages of bull markets,
which has caused market participation to broaden out.
Market Capitalization
Mid caps enjoy some of the early cycle characteristics of small caps, and
Mid Caps therefore, should perform well as a more durable recovery develops.
The early-stage bull market and beginning of the new economic expansion
provide tailwinds for small cap stock relative performance. Although we see
Small Caps valuations as reasonable and justified by earnings, a pause or pullback may be
warranted with the Russell 2000 Index up more than 120% since its March 18,
2020 lows.
We have moved to a balanced style view of growth and value. We believe
growth stocks will continue to be bolstered by strong earnings trends and
Growth favorable positioning for the pandemic in the near term. But as the threat of
COVID-19 subsides and the economic recovery potentially picks up steam in the
spring, cyclical value stocks may get a boost.
Style
If a strong and durable economic recovery emerges in the coming months as we
expect, we would expect cyclical stocks to perform well. Value stocks remain
Value attractively valued relative to their growth counterparts and tend to perform
relatively well when economic growth accelerates.
Among developed markets, we remain US-focused, but international developed
equities remain interesting as the world moves closer to the end of the
United States
pandemic. We see solid gains for US stocks in 2021, but the gap between US and
developed international stocks has started to narrow.
As a more durable economic expansion materializes performance for European
Developed and Japanese markets may improve. We give the edge to Japan over Europe
Region
International based on the country’s massive stimulus efforts and relative success
containing COVID-19.
We expect solid economic growth across Asia to support outperformance by
emerging market equities over developed markets in 2021. China has led the
Emerging way out of the global health crisis and is the only major economy in the world
Markets that grew in 2020. US-China tensions may calm some under a Biden
administration, though political instability in certain emerging countries carries
risk.
2FIXED INCOME
Limit Rate Sensitivity With Intermediate Focus
We suggest a blend of high-quality short-to-intermediate bonds in tactical portfolios. We expect the 10-year
Treasury yield to climb to 1.25–1.75% in 2021 as economic activity continues to recover. Compensation for longer-
maturity, rate-sensitive bonds remains unattractive. We still see incremental value in corporate bonds over
Treasuries, but credit spreads have little room for further tightening. We favor municipal bonds as a high-quality
option for taxable accounts, although valuations relative to Treasuries have normalized.
Low Medium High Rationale
Credit Quality Credit spreads have tightened significantly, but the economic outlook may be
supportive.
Positioning
Short Int. Long
Concerns over rising interest rates with the prospects of
Duration economic acceleration increase interest-rate risk.
COMMODITIES
Our precious metals view is neutral. The attractiveness of precious metals is further reduced by the
improving economic outlook and rising interest rates.
Our crude oil outlook is generally positive. The global demand outlook has improved recently as the end of
the pandemic comes into view, and higher oil prices have increased the amount of profitable available
production. Our concerns remain the US supply overhang that may limit further upside potential for prices,
the potential for more production internationally as prices rise, and the likely slow recovery in travel-
related demand, particularly air travel.
CONCLUSION
Our confidence in a full economic recovery is growing. A fully reopened economy is closer
to becoming a reality on a combination of falling COVID-19 cases and hospitalizations, better
treatments, more than a million shots going in people’s arms each day, and the resilience of the US consumer
and businesses—both large and small—to power through the immense challenges the
pandemic has presented. Plus massive fiscal stimulus likely to exceed 20% of US GDP and a Federal
Reserve that is expected to remain supportive for the foreseeable future further solidify the bull case.
But the battle against COVID-19 isn’t over unfortunately. New, more infectious variants of COVID-19
are out there. The vaccine rollout will take time, and there will be holdouts. Consumer behavior
may be slower to return to normal than we might expect. We see these risks as manageable at this
point and believe the market will continue to look forward to life on the other side of the pandemic.
3Disclosures
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any
individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.
All performance referenced is historical and is no guarantee of future results. All indexes are unmanaged and cannot be invested into directly.
Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any
investment.
Economic forecasts set forth may not develop as predicted.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or
eliminate risk in all market environments. Research material was sourced through LPL Financial, LLC.
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