Market Commentary – January 2021

Rewards for the Steadfast

2020 gave us the worst global health catastrophe in a century, a cratering economy, high unemployment, social unrest, and a bitter political slugfest. Someone with advance knowledge of these conditions might have expected low investment returns. But equity and bond investors were rewarded by solid progress.

The market resilience confounded many skeptics, but we believe it has a sound fundamental underpinning. As one of our favorite investment analysts is fond of saying, “For stock prices, better or worse is more important than good or bad.” Conditions are genuinely better. Unemployment is now less than 7%, a big improvement from 15% last April. Leading companies are achieving higher earnings and dividends. Most important of all, two coronavirus vaccines achieved more than 90% efficacy and received FDA approval in December. This scientific triumph was accomplished in record time! More vaccine approvals are anticipated in 2021 and will support sustainable economic growth.

Bartlett gives ample credit to policymakers for the comeback from crisis conditions.  The Federal Reserve Board led the way by reducing interest rates and Congress passed five major stimulus packages. These initiatives helped arrest a crippling economic tailspin that started last winter.

Timeless Principles

A favorite Bartlett saying is that time in the market is more important than market timing. This was validated again in 2020.  Patient investors achieved solid performance. Most market timers did not.

The year also confirmed the critical importance of asset allocation and careful diversification. These key safeguards allow you to maintain holdings during occasional scares, rather than selling. Moreover, these factors instill a capacity for rebalancing and opportunistic buying when prices are lower.

Rational Expectations

As Bartlett was not downcast last March, we are not unduly exalted today. We are always mindful that investing is a marathon, not a sprint.

We believe the strong investment performance achieved in 2020 makes leaner returns probable for 2021. This would be in keeping with history. The most rewarding periods for equity investors are in the early stages of improvement after economic setbacks, when stock prices are buoyed by expectations of an upturn. As recovery unfolds and economic growth settles at a more sustainable pace, progress becomes more measured. This pattern was certainly evident following economic setbacks in 1974, 1982, 1990, 2001 and 2008. So, do not expect a repeat of 2020! Bartlett believes stock returns in the mid to high single digits are more likely for this year, even if the economy continues improving. Bond returns, buoyed by the tailwind of falling interest rates in 2020, are likely to be modest in 2021. We think cash will continue to be anchored near zero percent, a strategy the Federal Reserve will continue until the economy is closer to full employment.

These more realistic performance expectations are used in Bartlett’s financial planning work. We think sensible assumptions are the basis for pragmatic investment policies that assure success over the long haul.

Portfolio Strategy

Hope for a “return to normal” has recently favored more economically sensitive stocks in sectors such as Financial Services and Industrials. These sectors performed poorly for most of 2020, especially when the economy was more fragile during the early stages of the pandemic.  Steadier companies – often found in categories such as Consumer, Health Care and Technology – have lagged recently as their more defensive characteristics have lost favor. We think aggressive “sector rotation” is just as unreliable as market timing. We do not attempt to move in and out of sectors based on economic forecasts. Bartlett believes a well-diversified portfolio should feature thoughtful long-term positions in all major sectors, rather than being exclusively geared to either an optimistic or pessimistic scenario.

Bartlett’s goal is “all weather” performance, participating nicely in rising stock markets and holding up comparatively well in difficult periods. We know this will help us avoid or minimize the costly behavioral penalty of selling stocks at low prices during market shakeouts.  With the stock market back near record high levels, we are aiming to keep our portfolios less vulnerable if there is another setback. This requires careful stock selection and appropriate bond and cash positions. Asset allocation safeguards are especially critical for clients relying on portfolio distributions.

January 6th

The mob assault on the U.S. Capitol was among the saddest events in American history. It should be gravely regarded by serious investors. Respect for the rule of law is the basis of our democracy, a form of government that is the foundation for the enduring prosperity necessary for investment performance.  Peaceful transfer of power has been among the most compelling hallmarks of this respect for centuries. We believe our system is resilient and we will certainly do our part as citizens to fortify civility, cooperation, and progress.

Concluding Comments

We are very grateful for your business. Working for you is a responsibility we always cherish but especially now as we reflect on the challenges navigated in 2020. Bartlett accomplished another year of high client retention last year – almost 99% – and we steadily added new clients. We hope you will recommend us to family, friends and colleagues who could benefit from our services.

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