Happy New Year! We cannot wait to see a fresh start in 2021!
Looking around the world and our states, we are still mired in the darkness of the severe pandemic once in one hundred years. But there are some good news both from vaccine side and from economy frontier. We can see the sunlight in the other end of the long tunnel.
Vaccination progress holds the key to the economy recovery. There are uncertainties about the logistics and acceptance of the vaccination by the public. But we have reasons to believe that the vaccination rollout will be accelerating. It’s estimated that the daily doses administered these two days are approaching 1 million. Once the resources of the health care system are released as a result of the inflection point arrives, it’s reasonable to estimate that the daily vaccination administered can pass 1 million per day, which means by end of April we will have half of the US population vaccinated and can reach herd immunity threshold in the summer.
We expect that the Biden government will extend financial aid to people in need. In addition the monetary policy is expected to keep accommodative through Year 2021.
Stock market valuation is stretched at 90% percentile in the history. This is not necessarily a warning sign. If the economy is recovered as market participants expected and corporate earnings quickly rebound, we think that the stretched valuation should not be a big concern for investors given current low interest environment, as we know that in theory stock price is discounted future cash flow at current interest rate.
With Democratic Party sweeping win both the houses we expect there will be some major regulatory or tax policies change. But the purpose of these new policies is not to cripple the stock market, but to solve some problems in the economy to certain extent. We need patience to see how the changes unfold themselves in the future.
In Year 2020 stock market was like a roller coaster. The past year told us the importance of sticking to your long-term investment strategy. The world was, is and will be full of uncertainties. What we finally need to keep in our mind is that the whole society will spiral up despite some setbacks. At current phase we still believe in the self-correction mechanism in the United States. Let’s continue to stick to our investment strategy in Year 2021.
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