December 2020

Since 2004, the S Fund had the best month for any fund, the I fund had its best month, and the C Fund had its second-best month. I do not think anyone expected these types of returns after the most tumultuous year on record for most of us. A couple of factors are at work. First, the election-again without straying into political waters here-was called for VP Biden much earlier than many expected. Whether it remains that way is an open question, but a reversal would have a short-term impact on the market with the long-term being more neutral. Second, vaccines. While lockdowns are in effect across much of the country, vaccines are coming, and there is a strong belief in a great flood of freedom when people are once again able to venture from their homes and into the economy. Finally, monetary easing and stimulus. While the returns this month are staggering, we must remember the true level of inflation is over 3% when we account for the true rise in food prices and housing prices. Making these return less dramatic is the G Fund which is on track to return about 1% this year when it normally returns 3%. The low returns on government bonds and higher than normal inflation are pushing investors into stocks in an effort to generate the same level of returns normally seen when everything is in balance. So where do I stand? Many indicators point to weakness and bubbles in several areas of the economy. We are still locked down, and we have a contested election. However, I think the unbalanced condition will continue at least in the short-term and the stock market will continue to benefit. One note of caution, I would not be surprised to see profit taking at the end of December, so make sure you evaluate your risk tolerance appropriately. Keep investing!