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A Year to Remember

It can be hard to feel optimistic when there are still so many challenges ahead. In early 2020 the entire world underwent a transformation – not only because of the pandemic but also due to heightened concerns over racial justice and climate change. Most of our normal routines changed immediately.

As 2020 comes to a close, Jeff Powell, CIO, Managing Partner & Founder of Polaris Wealth & Jeremy Witbeck, Partner at Polaris Wealth, review some of the year’s milestones and what they are looking forward to in 2021. 

Jeff Powell

Jeff Powell

Jeremy Witbeck

Jeremy Witbeck

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Jeremy Witbeck – {0:04}
Welcome to our Polaris Podcast. I’m your host, Jeremy Witbeck and a partner of clerks advisory group. And as always, we have Jeff Powell on the line. That’s Jeff, great to have you,

Jeff Powell – {0:14}
Hey, are you Jeremy

Jeremy Witbeck – {0:16}
yet doing really well. So Jeff, as we come near to the end of the year, thought it’d be great to go through a recap of what 2020 spend. And obviously, this is a year that feels like a decade. But if you could walk us through some of the things that we’ve gone through, and also how the the economy and the market respond, I think that’d be something really interesting. And certainly a lot of lessons to be learned this year.

Jeff Powell – {0:40}
Yeah, just kind of a recap on the year would be great, we’re kind of referring it to, you know, a year to remember, or perhaps a year to forgot. I think, you know, again, we’ve all been through so much this year that it does feel like it’s been way more than a year. But if you kind of think back to where we began 2020, I mean, we were joking around about how to tie in 2020, like 2020 vision and all this other stuff, you know, being able to have, you know, good foresight of what’s happening within the markets. And we certainly didn’t see some of what was coming until it was upon us, but kind of crazy. So I guess probably the easiest thing to do would be just start off with how the year began. And so I mean, really in, in January, we had televisions, we had a terrific end of 2019, we had seen some drops in 2019, because of the trade wars that were going on. And as that sort of subsided, some we saw a really nice run up between, you know, the tax cuts that had happened earlier the year before and other things that were going on, we saw some some nice things happening. And then, you know, we’ve been hearing things about a virus going on in China. But the Chinese were pretty protective about that they had obviously, we’re taking it as seriously as they could. And they started shutting down a city that very few people, I think at the time probably had heard of called move on. I’d heard of move on only because of the fact that we have a lot of technology companies that have production coming out of there. And so when we heard about Wu Han dropping, and so on, you saw the s&p 500 retreat, not because of the thought that it would be a worldwide pandemic, because of disruption to companies like Apple and Intel, and Microsoft, which all have major operations and move on. So we started seeing the market start pulling back then. And so, you know, again, as we kind of were looking at things, you had things like SARS and bird flu, and we’ve gone through this and some of the other educational pieces, looking at a bola and sinco virus and, and whatnot, all that have happened over the last 20 years. And really, most of those have been knee jerk reactions, you’d seen a short downturn in the markets. And then you’d seen a recovery very quickly. So as the Fed was going on, yeah, we were keeping an eye on it. But to be quite honest, we did not see a global pandemic on our hands.

Jeremy Witbeck – {3:21}
Just to your point. This is not the first time that we’ve had a risk of a pandemic. And yet this is the first time that it’s ever had the scale that it’s had this go around. I guess what were the the repercussions or the reactions to the market. So previously, you mentioned that there were knee jerk reactions, obviously this year was not a knee jerk reaction.

Jeff Powell – {3:41}
Well, I think that the biggest thing that the difference of, of COVID-19 is its incubation time period, things like SARS and Ebola, they kill you very quickly. And so when you go into a shutdown of a particular area, which went on in Africa went on and China during these different situations, they were able to control the virus much more so because how deadly it was as much as anything else. SARS basically had a very short incubation period of at it, you probably were going to die. And you know, because of that the virus killed its host and then it went away with SAR. This is a SARS Coronavirus. But with COVID-19 to be more specific of this particular situation, longer incubation period, lower mortality rate, which is really kind of the key elements of why this thing went global. People that know they had it, a lot of people were asymptomatic about it. They brought it at other people that then got it. So what ended up happening through this as the spread was going on way more than anybody was really kind of considering it to be happening. And so as you know, again, they were shutting down Wu Han or an already shut it down. What most people didn’t realize is that the Coronavirus was spreading already. And by late February, February 19 was when the markets peaked. And then a couple of smaller down days, and then the weekend came in over the weekend, it was broadcast that that COVID-19 had spread to over 30 countries. And again, while it wasn’t big numbers, it was very obvious that this had not been contained. And the market started just a freefall. And so you’re saying what was the reaction? Well, we had a 23 day drop in the marketplace of that 23 days, only five were up enough to give you a head fakes and give you some, some hope that the markets were going to stop their freefall at that point. But they were just head fakes. And so we saw from really February 19 until March 24, when the US Congress, both the Senate and House passed the cares act, and that’s when the markets stopped their freefall. But in that we saw, you know, our country shut down, we saw the largest drop in GDP history, we saw over a 9% drop in GDP and just a quarter, which is unfathomable. Again, when you look at things like the Great Depression, the Great Depression, the worst year was down 12%. Over the course of a year, we did 9%, in a single quarter, we’ve thrown another almost 3%. On top of that, in the second quarter be interesting to see where we’re gonna roll out for fourth quarter but but it’s been a tumultuous time period, we saw unemployment go up to 14%, almost overnight, in the midst of this drop, and as I said the drop was the fastest 30% drop in market history, it was faster than the Great Depression. You know, when we talk about the market crashes in 2009, and the crash in 87. Yeah, they were bigger one day moves. But this was the fastest drop from high to low to get to 30%, the s&p dropped a total of 34%. From from high to low. I mean, it was just really quite amazing.

Jeremy Witbeck – {7:22}
What’s been interesting mentioned the cares act on the past on March 24, or at least became widely known and market started recovering, it really never looked back since. And that’s probably the thing that’s been the most surprising and speaking with clients and prospective clients is that the market never came back down. In fact, if anything, it’s risen more than I think what a lot of people would have expected. Why is that? Because we’re not out of the pandemic, yet. We certainly are in what’s for most areas, one of the worst ways to this pandemic. And yet the market continues on what’s going on there.

Jeff Powell – {7:58}
Yeah, I mean, the thing to keep in mind with with some of the the market movements, and it has been surprising, we’ve written about the fact that 70% of the time, when you have a waterfall watershed, whatever you want to call it drop in the market, historically, 70% of the time, there’s a rally, the rally fails, and the markets actually go lower than they were. So when the market started to recover in March and April, we were cautious about it. And I have gone straight up from there. The recovery was really worked from home play from home, large cap growth driven marketplace, there are still plenty of areas of the stock market that have not recovered. You can look at a lot of the financials, you can look at a lot of the industrials, look at energy companies, they none of those areas have really fully recovered. So this is a very narrow, large cap growth recovery that we saw, really, you know, at first in the first month, was a trajectory that you could not imagine. And then a slow recovery from there, really to where we are today, which basically up about 14% for the year is pretty remarkable given everything that was going on the thing that we also have to kind of add into all this in the midst of the recovery, as we had the whole George Floyd Black Lives Matter aspects to deal with where we had certainly plenty of of good reason for peaceful marching and so on. But it also sparked civil unrest. I mean, and when you’ve got people burning down buildings and looting and other things, I mean, that’s pretty serious stuff. And you saw that nationwide. I mean, so we got in the midst of all this stuff. We’ve got a pandemic going on. We’ve got a social distancing and a lockdown of our economy. We’ve got a spread of a virus that we really were trying to get our arms around. You had a I think fairly natural reaction to Police Police brutality. But what ended up happening with that as it sparked additional COVID cases throughout the country due to the protesting that was going on. So again, we had seen the initial wave of COVID head. And then we started to see a remarkable recovery from that. And then, you know, protesting started going on, we saw a second wave happen. And now with thanksgiving and so on, we’re seeing, obviously, an unparalleled third wave of COVID hitting our country right now, the reason for the upside? Well, a, we have an hour, two, maybe three vaccines that look very, I mean, two that have been approved by the FDA, and other a couple that are looking very promising way above where levels that we were hoping for it to be. I mean, when we talk about having a flu shot, you’re talking about typically 55 60% accuracy to this. The stuff that’s going on with Pfizer, and also with Madonna is pretty remarkable. The RNA technology that they’ve got is just really tremendous. They both went about it in a very similar way, with 95% effectiveness to combating COVID-19. So I think really, what we’re talking about is, people are looking out 12 months, 24 months to where their markets may be. And that’s what’s driving this market. It’s not that economically, we’re doing phenomenally well, we are recovering. But again, we keep on, you know, opening up and having to shut back down because of COVID. And it’s just gonna be a lot more Rocky, I think that most people are giving expectations for for 2021.

Jeremy Witbeck – {11:53}
That certainly makes a lot of sense. And and I think the part that’s the most difficult, at least from an intuitive or gut level is to kind of look at where things are headed. And I recognize a lot of times, that’s what the market is pricing in and not necessarily looking at the problems or the troubles you’re in now. But certainly, the next 12 months are going to be very interesting with the vaccine rolling out. Jeff, normally with a market recovery, right, there’s different waves of recovery as well. So certainly, we saw that in 2008, where there’s different types of securities that did that perform differently during the various stages of the recovery, are we going to see something similar to that with the recovery of this market as well

Jeff Powell – {12:37}
it’s gonna be a very interesting 12 months, I think, one of the things you were talking about, and I think that it’s, it’s an important one to kind of think about, not only with what’s going to be going on for next year, but also what has gone on. So far this year. There’s different ways of throwing it out, I mean, analogies or metaphor, or whatever else you want us to throw to the equation. But we talked about, you know, if you’re a quarterback you throw where the or the wide receiver is, or do you throw it to where you want them to, you know, you lead your wide receiver with a pass, you talk about, you know, skating to where the puck will be, you know, someone passing you a puck playing hockey, they’re gonna pass it out in front of you. So that’s the same thing with with a Mustang, you got to think ahead, you got to be putting something out in front of you, not to where you are in the market. So we got to be thinking about what’s ahead for us, much more so than where we think that things are at the moment. recoveries are. We’ve talked about this a few times, recoveries historically, are started by one segment of a market. And then that tires out. And then another segment of the marketplace picks up the slack and carries the market further up. As we’ve seen so far this year, really, the markets have been driven by technology. You can call it technology in different ways. I mean, within consumer discretionary, for example, there’s a who’s and who’s not. And you’ve got companies like Amazon and consumer discretionary, that have done phenomenal target and other consumer discretionary company, Home Depot that have done very well. And then you’ve got other areas that have just gotten absolutely destroyed. In a lot of the big box stores have gotten destroyed do now starting to see a lot of those recovering like a Nordstrom would be a great example of a company that we don’t own. That has recovered very nicely. And so again, when we’re looking at this, what areas are looking good. And again, there are several segments of the market that we are adding to to our portfolios. I’m going to make it a teaser and say that you’re gonna have to come to our webinar in January to really kind of hear the full amount of it but what we really want to be thinking is, think about it strategically and think of it as as playing chess. You got to be thinking multiple times. ahead, and you can’t be looking at what’s going on with the board right now you have to thinking about what’s going on going forward. So we’ve got a runoff election in early January, that can have an impact on the markets, we obviously have presidential inauguration in January, obviously, the hope is for a smooth transition of power there. That could be something that flows the markets for a little bit of a loop. And then really, to me, without getting into, again, the specifics of where we’re planning on investing, but looking at the rollout of the vaccines, both by Madonna, as well as with Pfizer, if we’re looking at it from that kind of context, if they don’t roll out properly, then we don’t have our population immune systems. And so we’re really looking for having a herd immunity, or herd immunity being 75% of our population or more needs to be immunized. And so really, we cannot get back to life as normal, if that’s what we want to call it, until we see a full immunization of our population, or at least at levels that will knock it down because herd immunity is kind of what we were talking about earlier with, with SARS. I mean, if you get enough people that are immune to getting COVID-19, then it dies off. And so we may see still see a rear its ugly head again, and you know, winter time, or it might be our new flu or something along those lines. So we may have to be getting an Oculus ID more often, for COVID-19. But at least we have something that’s 95% effective, we just need to get the we got to get it rolled out. And so those are going to be the things I think that are going to really influence 2021. And we’ve got, again, some political turnover that needs to happen early into the years, smoothly, we get through that. And then we have really a how do we distribute? How do we get people immunized and you know, get them out there, get them done, and move forward. And so those are the types of things that will get us back to a life as we know it. Until then, all bets are off.

Jeremy Witbeck – {17:12}
I think that’s that’s a great point. Um, I, on various levels were earlier, you mentioned that there are still areas of the market that have not recovered. And that’s probably one of the most exciting things about 2021 is that this party’s not over yet. And the fact that there’s a good segments of the market that’s done quite well. And another segment that hasn’t done quite as well, by making proper tactical shifts, and that there’s a ton of opportunity in 2021 take advantage of and just something that I’m looking forward to listening are your your remarks and forecast for 2021. Do you mind sharing just a little bit more information? How are people going to be able to, to listen to that.

Jeff Powell – {17:53}
So I mean, obviously, we are doing webinars on a quarterly basis now. And so we will be sending out to our clients an invite to it will also have the ability on Polaris vault COMM The ability to also sign up. So if you are not a client, and you are not on our current distribution, less than one two will have the ability to sign up for the webinar, and have that kind of a save the date type of situation for people, probably early into the new year is when we’ll have to save the date will probably push the the event itself out and to kind of mid to latter part of January just to let everybody get the holidays underneath them and kind of move forward from there. So we’ll make it clear to everybody that what’s going on and make it available to anybody that wants to listen to it.

Jeremy Witbeck – {18:52}
Perfect, Jeff, once again, something to look forward to. So with that, Jeff, any last remarks that you had before we wrap up for today? 

Jeff Powell – {19:01}
Well, I mean, I think that, like you said, I’m excited for next year. I mean, obviously, you know, I want to put 2020 behind us, it’s definitely been a year that has been stressful for all. And I think different people have handled that in different ways. But really, to your point, you know, even within the markets, there are certain areas that I think are going to be more tired than others that have already had their run up that are priced to perfection. And if they don’t provide perfection in the way of earnings, that there you’re gonna see some weakness in the areas of the market that had once been strong. But there are huge opportunities out there and stuff that we’re very excited about taking taking advantage of and the upcoming year, we think that we can have a very strong year from a performance standpoint, even if the markets themselves on a index level don’t necessarily reflect that.

Jeremy Witbeck – {19:55}
Yeah, perfect, Jeff, and really appreciate your time and expertise and so to everyone With us happy holidays have a wonderful and safe holiday season and look forward to speaking with you next time.

Jeff Powell – {20:07}
Happy Holidays everybody.

{20:13}
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