After months of election uncertainty, Joe Biden was inaugurated as our 46th president, bringing the peaceful transfer of executive power that defines us as a democracy. President Biden’s pen has been busy, busy, busy so let’s dive into some new policies that could impact you in this short video that we prepared.
Hello, I’m Dr. Chris Mullis with NorthStar Capital Advisors.
After months of election uncertainty, Joe Biden was inaugurated as our 46th president, bringing the peaceful transfer of executive power that defines us as a democracy.
President Biden’s pen has been busy, busy, busy so let’s dive into some new policies that could impact you.
Student loan freeze:
The Department of Education extended the suspension of federal student loan payments through September 30, 2021, giving borrowers some extra breathing room this year. No interest will accrue during that period, and each month will count toward public service loan forgiveness as well as student loan rehabilitation. Unfortunately, private loans are again excluded from the freeze.
Foreclosure and eviction moratoriums:
The CDC extended the federal eviction moratorium through March 31, 2021, preventing renters from being evicted for non-payment of rent. Fannie Mae and Freddie Mac also extended foreclosure and eviction moratoriums until February 28, 2021.
Under a program passed in December, states will begin disbursing $25 billion in rent assistance to help tenants pay rent and utilities. Funds can be accessed locally through housing groups, 211/311 information lines, and local representatives.
Will Americans receive more stimulus checks?
I think that’s likely, but it’s not yet clear who will get them or how much they’ll be. The new $1.9 trillion stimulus program Biden has proposed offers $1,400 stimulus checks, enhanced unemployment benefits, a $15 minimum wage, aid for states and local governments, money for COVID-19 vaccines and testing, as well as help for parents and schools.
What will the final bill look like once Congress finishes negotiating?
Unknown. Opinions and criticism abound. Some think the proposal is too big, too costly, and risks overheating the economy. Some believe it doesn’t do enough to address the real pain many Americans are experiencing. Others think that getting it done (and done quickly) is more
important than getting it perfect. What do you think? Shoot me an email and let me know.
Tax season starts later this year, but the filing deadline is still April 15 (for now).
The IRS has pushed back the start of tax season by several weeks, delaying the acceptance and processing of tax returns until February 12. Currently, the tax filing deadline is still April 15, but that could also change.
I’ve had some questions about how the 2020 stimulus payments could affect taxes, so I’ll answer a few right here:
Do I owe taxes on my stimulus money?
No, the IRS does not consider stimulus payments to be income.
I didn’t receive my money (or the correct amount of money).
Since stimulus payments were based on prior year tax returns, you’ll receive any money you’re owed when you file your 2020 return. If you think you may have received too much based on your income, you’re in luck. It doesn’t look like you’ll have to pay any back.
So that’s a lot of information to digest. And more will be coming as the new administration settles in and starts working on what’s promising to be a big agenda for the first 100 days.
If you have questions or need help figuring out assistance for yourself or someone you love, please reach out. It’s what I’m here for.
Finally, let’s address one last question.
Will all the political back and forth trigger a big correction?
With markets at highs, a pullback is always possible. As long as progress is made toward getting control of the pandemic and supporting the economy, a serious correction seems unlikely. However, setbacks or a sudden loss of investor optimism could definitely cause a sudden drop.
The twists and turns so far make it seem like 2020 is dragging into a second season.
As Americans, we’re shocked and worried, and we’re wondering how political disagreements turned into excuses for violence.
As a financial professionals, we know that the politics, protests, and rioting in DC are just one factor affecting markets.
We honestly don’t know what will happen over the next few weeks, but we can help you understand how it affects you as an investor.
Why did markets surge the day the Capitol was attacked?
While the world watched the violence in DC with horror, markets quietly rallied to new records the same day.1
That’s weird, right?
Well, not really.
We think it boils down to a few things.
Computers and algorithms are dispassionate, executing trades regardless of the larger world.
Markets don’t always react to short-term ugliness. Instead, they reflect expectations about economic and business growth plus a healthy dose of investor psychology.
With elections officially at an end, political uncertainty has dissipated.
Overall, we think investors are looking past the immediate future and hoping that vaccines, increased economic stimulus, and economic growth paint a positive picture of the future.
The Democrats control the White House and Congress. What does that mean for investors?
If you’re like a lot of people, you might think that your party in power is good for markets and your party out of power is bad.
That makes for a stressful experience every four years, right?
Fortunately, that’s not the case at all. Markets are pretty rational with respect to politics and policy.
While businesses and investors generally dislike increased taxes and corporate regulation, the Democrats hold such slim majorities in the House and Senate that it limits their ability to pass many big policy changes.
Also, the Democrats’ immediate agenda is very likely to be focused on fighting the pandemic and passing more stimulus aid, both of which should support stock prices.
Does that mean markets will continue to rally?
No guarantees, unfortunately. With all the frothy market activity and rosy expectations about the future, bad news could knock stocks down a peg or two.
A correction is definitely possible, and some strategists think certain sectors are in a bubble.
Bottom line, expect more volatility.
Well, what comes next?
We wish we could tell you.
We’re hoping that the vicious, divisive politics will come to an end after the inauguration, and the politicians can get back to work getting us through the pandemic.
We’re optimistic that the light at the end of the tunnel is getting closer and we can start going back to normal.
We’re proud of what scientists and medical professionals have been able to accomplish in such a short amount of time.
We’re grateful for the folks around us.
We’e hopeful about the future.
How about you?
What’s your take? We’re interested to hear your thoughts.
The NorthStar Team
P.S. Tax laws are likely to change under the Biden presidency. We don’t know exactly when they’ll happen or what they’ll look like, but we’ll be in touch when we know more.
Once in a very great while, there comes a year in the economy and the markets that may serve as a tutorial — in effect, a master class in the principles of successful long-term, goal-focused investing. Two thousand twenty was just such a year.
On December 31, 2019, the Standard & Poor’s 500 Stock index closed at 3,230.78. This past New Year’s Eve, it closed at 3,756.07, some 16.3% higher. With reinvested dividends, the total return of the S&P 500 was about 18.4%.
From these bare facts, you might infer that the equity market had, in 2020, quite a good year. As indeed it did. What should be so phenomenally instructive to the long-term investor is how it got there.
From a new all-time high on February 19th, the market reacted to the onset of the greatest public health crisis in a century by going down roughly a third in five weeks. The Federal Reserve and Congress responded with massive intervention, the economy learned to work around the lockdowns — and the result was that the S&P 500 regained its February high by mid-August.
The lifetime lesson here: At their most dramatic turning points, the economy can’t be forecast, and the market cannot be timed. Instead, having a long-term plan and sticking to it — acting as opposed to reacting, which is our clients’ and our firm’s investment policy in a nutshell — once again demonstrated its enduring value.
(Two corollary lessons are worth noting in this regard. (1) The velocity and trajectory of the equity market recovery essentially mirrored the violence of the February/March decline. (2) The market went into new high ground in midsummer, even as the pandemic and its economic devastations were still raging. Both outcomes were consistent with historical norms. “Waiting for the pullback” once a market recovery gets under way, and/or waiting for the economic picture to clear before investing, turned out to be formulas for significant underperformance, as is most often the case.)
The American economy — and its leading companies — continued to demonstrate its fundamental resilience through the balance of the year, such that all three major stock indexes made multiple new highs. Even cash dividends appear on track to exceed those paid in 2019, which was the previous record year.
Meanwhile, at least two vaccines were developed and approved in record time, and were going into distribution as the year ended. There seems to be good hope that the most vulnerable segments of the population could get the vaccines by spring, and that everyone who wants to be vaccinated can do so by the end of the year, if not sooner.
The second great lifetime lesson of this hugely educational year had to do with the presidential election cycle. To say that it was the most hyper-partisan in living memory wouldn’t adequately express it: adherents to both candidates were genuinely convinced that the other would, if elected/reelected, precipitate the end of American democracy.
In the event, everyone who exited the market in anticipation of the election got thoroughly (and almost immediately) skunked. The enduring historical lesson: never get your politics mixed up with your investment policy.
Still, as we look ahead to 2021, there remains far more than enough uncertainty to go around. Is it possible that the economic recovery — and that of corporate earnings — have been largely discounted in soaring stock prices, particularly those of the largest growth companies? If so, might the coming year be a lackluster or even a somewhat declining year for the equity market, even as earnings surge?
Yes, of course it’s possible. Now, how do you and we — as long-term, goal-focused investors — make investment policy out of that possibility? Our answer: we don’t, because one can’t. Our strategy, as 2021 dawns, is entirely driven by the same steadfast principles as it was a year ago — and will be a year from now.
We have been assured by the Federal Reserve that it is prepared to hold interest rates near current levels until such time as the economy is functioning at something close to full capacity — perhaps as long as two or three more years.
For investors like us, this makes it difficult to see how we can pursue our long-term goals with fixed income investments. Equities, with their potential for long-term growth of capital — and especially their long-term growth of dividends — seem to us the more rational approach. We therefore tune out “volatility.” We act; we do not react. This was the most effective approach to the vicissitudes of 2020. We believe it always will be.
As always, we’re here to talk any and all of these issues through with you.
We wish you a happy, healthy, prosperous and fulfilling 2021.