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Come for Affordability, Stay for the People

This week the markets trended sideways as it digested earnings announcements and what a Biden administration will mean for both the economy and the stock market.  As of now, it remains undecided as President Biden signed a bevy of executive orders mostly pertaining to the pandemic and began laying the groundwork for further stimulus.  The next few weeks should give us an indication whether republicans and democrats can come together to achieve their shared goals, or whether the next four years will result in gridlock and acrimony.

Before we say goodbye to President Trump, I want to share how the stock market did under his leadership. While you may disagree with some of his policies and perhaps his leadership style, one cannot argue with his results. From his inauguration until market close on Tuesday, the S&P 500 is up 68%, the Nasdaq is up 138%, and the Dow Jones Industrial Average, which remains the standard for presidential comparisons, is up 57%. President Trump’s annualized return of 11.8% was the best for any Republican president since President Calvin Coolidge in the Roaring Twenties. The Dow made 126 new all-time highs under Trump. Among all presidents, it only trails Presidents Clinton and Obama with annualized returns of 15.9% and 12.1% respectively. Annualized Dow returns have achieved double digits in four of the last six administrations, with only George W. Bush having realized a negative return.

In company news, the big splash this week was the announcement of a long-term strategic relationship between General Motors and Microsoft. Under the partnership, the companies plan to bring together their software and hardware engineering expertise to accelerate the commercialization of self-driving cars. GM CEO Mary Bara made clear, “The addition of Microsoft will help drive forward a future world of zero crashes, zero emissions, and zero congestion.” In other EV news, an Israeli-based battery company StoreDot says it developed the world’s first car battery that can be fully charged in just five minutes. If this is true and can be commercialized, it would be a game changer for the EV industry.

As for the economy, there is good reason to remain concerned. When I talk about further stimulus being necessary, here’s one example of what I mean. 2020 ended with 1.7 million more seriously delinquent mortgages than 2019. Last year, 2.15 million homeowners were seriously delinquent on their mortgage payments, even after months of improvements. While the national delinquency rate in December fell to its lowest level since April, this is a huge increase and one that is likely to linger into 2021. As moratoriums for evictions and foreclosures were put in place during the pandemic, foreclosures fell 67% year-over-year. However, for many the issue hasn’t gone away and baring an extension of the eviction and foreclosure measures, many delinquencies will find themselves in foreclosure.

And in closing, while we’re on the subject of housing, let me share a bit of good news I learned a couple weeks ago.  For more than a decade now I watched, to my dismay, as home prices accelerated dramatically on both the East and West coasts.  It seemed the Midwest really was “flyover” country as home prices here languished.  No, we don’t have wonderful weather, majestic views of mountain peaks, winning sports teams (I’m looking at you Bengals!), beaches or ocean views.  But it appears we do have something to offer after all.  We have affordability.  With the exodus of people from large, urban centers, largely due to the pandemic but also rising tax burdens, it seems home prices in the Midwest outpaced much of the rest of the country.  Cities including Cleveland, Cincinnati, Indianapolis, Kansas City, Boise, and Memphis saw home prices increase 10% or more according to the Federal Housing Finance Agency (FHFA), far outpacing the rest of the country.  With mortgage rates as low as they have ever been and a significant shortage of housing supply, it is likely this trend could continue into 2021.  It only took a global pandemic for the rest of the country to see the value the Midwest has to offer.  Now you know.    

Bruce J. Mason, MBA