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October 2020 Market & Economic Update

October 2020 Market & Economic Update

10/06/2020

A great quarter ended with a miserable September which sure lived up to its reputation for inflicting pain on stock investors in the US and worldwide. The S&P 500 declined 4% for the month and the Dow Jones index declined by 3%. While Gold declined by 2.77%, as the dollar reversed the recent downward trend and strengthened for the month. These losses, however, could not stop the market from having a fantastic quarter. The Dow Advanced 7.6% while the S&P 500 rose 8.5% and the Nasdaq Composite gained 11%

 (source: Bespoke Investments)

 

As of 9/30/2020 Year to date Returns:

US (S&P 500, Symbol: SPY)                               Up 4.7%

The Dow Jones (Symbol: DIA)                           Down 2.42%

The NASDAQ Composite                                  Up 26%

Europe (Euro Stoxx 50, Symbol: FEZ)               Down 10.6 %

Emerging Markets (Symbol: EEM)                    Down 0.8%

Bonds (Total Bond Index, Symbol: BND)            Up 6.97%

Gold (Symbol: GLD)                                            Up 25.4%

(source: cnbc.com)

September was the first down month since the market rallied from the Corona pandemic in March.

There are multiple reasons for the decline this past month. One, is that August was quite strong and the market had been up strongly from April to August and the market was hoping for more monetary stimulus from the Federal Reserve and did not get that in the early September Fed announcement. Secondly, as the additional unemployment benefits expired without a renewal by congress, some are concerned that the economy will not be able to continue the recent path. Lastly, jitters about a contested election prompted some to reduce stock allocations. And as congress failed to pass a new stimulus bill, it is likely to see more layoffs from hard hit industries that are hoping for relief from a new stimulus bill. The unemployment data for September shows a slowing down in rehiring. In July & August, he US economy created on average 1.6 million jobs per month, compared to 660,000 in September. The US economy has now recovered just 11.4 million of the 22.2 million jobs it lost in February and March. (source: ft.com)

The upcoming election is on the mind of all. Currently the polls and the betting markets are showing a lead for former Vice President Biden. President Trump testing positive for Covid is ominous but does not change the trajectory very much for the election, in our opinion. While policy between the two sides can be quite different and can affect the financial markets in the very short term we feel that it’s the Federal Reserve and liquidity (access to low cost money)  that has been and will continue to be the biggest driver for the upward direction of the markets. We also feel that the economy’s trajectory of recovering from the Corona lockdowns is bigger than any administration. That said, fiscal policy from congress or the administration can speed up the current recovery. Clearly the Democrats and Republicans would have their different approach. How that is implemented will depend largely on the makeup of Washington after the election. In the link below there is an excellent analysis that discusses if the upcoming changes in policy will be sweeping or simply incremental.

Will upcoming policy changes be sweeping or incremental?

lastly, what is most interesting is a recent Vanguard study that looked at annual performance of a balanced stocks and bonds portfolio and it found that since 1870 to 2018, the average annual compounded return under a Democratic administration was 8.4% per year and was 8.2% per year under a Republican administration. (source: Vanguard.com)

In the meantime, should you have any questions or would like to discuss your situation please don’t hesitate to let us know so we can set up a call or video conference or a meeting if need be.


Sincerely,

 

Neal W. Mufti, CFP®                                                        M. Mike Iftaiha, CFP®

Managing Director                                                            Financial Advisor

Opinions expressed here are those of the authors. The information provided is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. International investing involves special risks not present with U.S. investments due to factors such as increased volatility, currency fluctuation, and differences in auditing and other financial standards. These risks can be accentuated in emerging markets. In general, the bond market is volatile as prices rise when interest rates fall and vice versa. This effect is usually pronounced for longer-term securities. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss. Past performance is not a guarantee of future results. Indexes cannot be invested in directly, are unmanaged and do not incur management fees, costs and expenses.

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S&P 500: The S&P 500 is an unmanaged index comprised of 500 widely-held securities
considered to be representative of the stock market in general.
DJIA: The Dow Jones Industrial Average (DJIA) is a price weighted index of 30 of the largest, most widely held stocks traded on the New York Stock Exchange.
NASDAQ: The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System.
The Euro STOXX 50 Index is a market capitalization weighted stock index of 50 large, blue- chip European companies operating within Eurozone nations. Components are selected from the Euro STOXX Index which includes large-, mid- and small-cap stocks in the Eurozone.
The iShares MSCI Emerging Markets Index Fund seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of publicly traded securities in emerging markets, as represented by the MSCI Emerging Markets Index.
Total Bond Market (BND) is an exchange-traded fund (ETF) created by Vanguard to track the performance of Barclays U.S. Aggregate Float Adjusted Index, which is a broad, market-weighted bond index.
The SPDR Gold Trust (GLD) tracks the performance of the price of gold bullion, less the Trust's expenses.