At the end of January 2020, Tyler Russell, Lori Peters and discussed the upcoming year, believing it was going to be an excellent year for both the economy and the markets. The U.S. was experiencing strong economic growth fos­tered by low taxes, low interest rates and less government regulation. I reminded them of my favorite lyric from the Grateful Dead – “when life looks like easy street, there is danger at your door“. When I made that remark, I had heard the coronavirus was spreading in China, but I was not very informed about living through a pandemic. Now, like you, I feel like a bit of an expert. We went from the best of times to what some people consider the worst of times at breakneck speed. The narrative quickly changed from anticipating strong economic growth in 2020 to headlines projecting economic despair.  

The past twelve months represent one of the most event­ful periods Americans have experienced, from volatile economic and market headlines to an impeachment of our former President, to a nail-biter election and a second impeachment. Early pandemic financial reports indicated we were about to enter the worst scenario since the infa­mous Great Depression. Early headlines were all negative, and many believed the economy and the markets would be doomed for many years. In a very short time, we expe­rienced the sharpest one-day decline in the history of the stock market. 

Then, in came the Cavalry-better known as the Federal Reserve. In conjunction with Fed action, a massive stim­ulus bill was passed by Congress. Suddenly, we experi­enced a change in investor attitude which led to the great­est one–day increase in the stock market in U.S. history. 

When Covid–19 began to spread at an alarming rate, found myself, like many of you, going to the grocery store and not being able to find toilet paper. I had never ex­perienced that before, but people hoarding toilet paper could certainly have foreshadowed a tough road ahead. As I write this letter, there have been 28.4 million coro­navirus cases in the U.S., with a death toll above 508,000. Political events, combined with the backdrop of Covid-19 new cases and deaths becoming increasingly worse every day, have left us exhausted as a country. 

So, where do we go from here? Based on everything pub­lished to date, I am cautiously optimistic about the vac­cines that have started to arrive. Pfizer and Moderna vac­cines are approved now, the Johnson & Johnson vaccine is on its way and there are others expected to come to market by late summer. It will take a few months, but vac­cinations will change the direction of everything. 

With all the reading I have done in the past two months, I could have included a broad range of thoughts in this letter, however I have decided to keep it somewhat brief. I would like to share with you ten projections from Bob Doll, Nuveen’s Chief Equity Strategist. I have known Bob for 25 years; he has been in our office several times and has spo­ken at the Carter Investment Conference. Every year, Bob announces his projections for the upcoming year. He has a good track record of being right. I think these predic­tions will provide a series of discussion topics for future communications and are a good way to frame what could be the major economic developments of the year. 

Others have made equally interesting projections. n his forecast for 2021, Jeffrey Gundlach predicted a “regime change.” Gundlach is the founder and Chief Investment Officer of Los Angeles-based Doubleline Capital, a leading provider of fixed-income mutual funds and ETFs. He sug­gested investors should prepare for themes that reverse prior trends: U.S. equities will underperform the rest of the world, inflation will rise, volatility will be higher, and the dollar will weaken. One of his most noteworthy predic­tions is that the Consumer Price Index (CPI) will rise above 2.5% by June of this year. He feels equities are expensive, but not very expensive in comparison to bonds. 

I personally am not comfortable making any broad mar­ket predictions currently because everything is moving at such a fast pace, especially with a second impeachment trial hanging in the balance. However, on a few specific fronts I do feel comfortable sharing my expectations. I do think interest rates will drop and inflation will increase, but only mildly. We should see an increase in income tax rates, if not this year, then certainly in 2022. There could be mul­tiple tax code changes, such as a revision of estate taxes, and we will follow those closely and discuss in future com­munications. 

U.S. domestic stock funds, especially growth stocks, are in my opinion overvalued, however, being overvalued does not mean much since assets can stay overvalued for extended periods of time. If interest rates stay low and growth company earnings pick up, they will not be over­ valued for long. Generally, the way this cycle ends is either the market corrects, or earnings grow and boost prices to meet valuations. 

Where should we look for opportunity? think there is rea­son to lean toward small cap U.S. stocks, international and emerging markets. Given current valuations, I think inter­ national markets will most likely perform better than the domestic markets. The U.S. market may continue to in­ crease, and most likely will if the newly proposed stimulus package passes, but the better buys are in small cap and international markets, both emerging and established. 

I believe President Biden has set out some sound but ex­pensive stimulus objectives, and I think most will be vot­ed into legislation. Governing is much more difficult than running for an elected office. It is impossible to know how long it will take for these predictions to play out. 

The Feds made it very clear that they are planning to stick to their current agenda and keep interest rates low. I think we would have to see 2.5% to 3% inflation rates before the Fed would make any substantial increase in interest rates.

The Fed will want to ensure the economy is on very stable footing before raising rates, although they can slow the rate of growth rather quickly, if needed. As I have said before, putting the inflation genie back in the bottle can be very difficult. Other key items to watch this year will be U.S. relations between China and North Korea, the dismantling of democracy and freedom in Singapore, the military take­ over in Burma/Myanmar and how the United Kingdom economy fares during the exit from the European Union. 2021 will most certainly not be boring. 

I want to thank everyone for your support of Carter Finan­cial during this last year, especially all the personal sup­port you gave me during my difficult experience with back surgery and recovery. You are a great clientele. 

I also want to give special recognition to our staff for their performance and attitudes during this last year. I stressed to our employees in March 2020 that it was going to be very important to maintain focus and intensity, under­ standing it was going to be a very difficult year. 2020 was a challenge at best, and working remotely was not par­ticularly easy for some of our team with young children at home, which meant juggling parental responsibilities in addition to providing great service to our clients. They have all done a tremendous job. Each member of our team went above and beyond the call of duty to service our clients. I am extremely proud of this group. Becky Bell is just a few years into her role as President of CFM, yet she has performed spectacularly in handling the challeng­es of last year. 

My deep appreciation goes out to all our clients and friends and to the staff and planners of Carter Financial Management and Carter Advisory Services.