Hello all – we hope you had a nice October.
It was a tough month for the markets as they posted their worst returns since March when the Coronavirus began. The Dow lost 4.6%, the S&P fell 2.7%, and the Nasdaq, which has a higher concentration of tech companies, was off 2.3%.
It was a tough month for the markets as they posted their worst returns since March when the Coronavirus began. The Dow lost 4.6%, the S&P fell 2.7%, and the Nasdaq, which has a higher concentration of tech companies, was off 2.3%.
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The main focus this month was the election.
Some commentators attributed the movement of the markets this month to investors preparing for the various political outcomes. There may, in fact, have been some money taken off the table to avoid volatility around the election, but positioning portfolios at this time is foolish since it’s just too close to call.
A couple months ago we mentioned how the stock market was a great indicator of who would win the Presidency. With a 90% accuracy, if the market is up in the three months before an election, the incumbent wins. If it is lower, the incumbent loses.
As you can see in the chart below, there’s still a couple days left but it is a very close call.
Some commentators attributed the movement of the markets this month to investors preparing for the various political outcomes. There may, in fact, have been some money taken off the table to avoid volatility around the election, but positioning portfolios at this time is foolish since it’s just too close to call.
A couple months ago we mentioned how the stock market was a great indicator of who would win the Presidency. With a 90% accuracy, if the market is up in the three months before an election, the incumbent wins. If it is lower, the incumbent loses.
As you can see in the chart below, there’s still a couple days left but it is a very close call.
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The rising level of Coronavirus cases also had an impact on the market. Cases turned sharply higher and reached record daily levels.
However, its not as serious as it appears. The level of deaths remains very low despite the higher level of cases.
The concern for investors, however, is new shutdowns.
Many European countries announced new - and somewhat severe - lockdowns. This will have a significant impact on the economy. Headlines like the one below cause stocks to fall.
Many European countries announced new - and somewhat severe - lockdowns. This will have a significant impact on the economy. Headlines like the one below cause stocks to fall.
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Another reason for the fall in stocks was the lack of a stimulus deal.
For months there was a back-and-forth between the two political parties, where positive news about stimulus sent stocks higher and negative news sent them lower. Stocks kept going lower when it became clear that no stimulus is coming any time soon.
For months there was a back-and-forth between the two political parties, where positive news about stimulus sent stocks higher and negative news sent them lower. Stocks kept going lower when it became clear that no stimulus is coming any time soon.
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Corporate earnings for the third quarter were another big story this month and the results have been pretty decent. The stock market hasn’t been impressed, though. Companies reporting good earnings haven’t seen their stock prices rise.
As you can make out from the chart below, an earnings beat results in only a slight rise in the stock price.
As you can make out from the chart below, an earnings beat results in only a slight rise in the stock price.
On the other hand, companies that missed their estimates were sold off sharply.
The main takeaway is that companies have done pretty well, but their stock price hasn’t reflected it.
Employment appears to be improving, too. The amount of people filing for unemployment continues to trend lower, although it still remains at a very high level.
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Getting into economic data released this month, the results have been mostly positive as we continue to recover from the virus’ impact.
Economic growth, as measured by GDP, had its biggest expansion in history. Of course, it came after the biggest decline in history, but it shows how quickly we are bouncing back.
Economic growth, as measured by GDP, had its biggest expansion in history. Of course, it came after the biggest decline in history, but it shows how quickly we are bouncing back.
The manufacturing and service sectors continue to do well.
Retail sales continue to grow…
…and durable goods, which are items with a longer life, are also slightly higher.
It’s not all good news, however, as the industrial side looks to be weakening.
As for sentiment, small businesses are seeing a surge in optimism…
…but the consumer side isn’t as bright.
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Where does the market go from here?
Many indicators we follow are on the oversold (or cheap) side in the short term. We think the odds of a rise are greater than a decline at this point.
However, the election is a big uncertainty and no one can be sure how the market will react. A Trump victory is likely to see stocks rise based on pro-growth policies, and a Biden win may also see stocks rise in anticipation of more stimulus. It may be a good time to buy.
This commentary is for informational purposes and is not investment advice, an indicator of future performance, a solicitation, an offer to buy or sell, or a recommendation for any security. It should not be used as a primary basis for making investment decisions. Consider your own financial circumstances and goals carefully before investing. Past performance cannot guarantee results.
Many indicators we follow are on the oversold (or cheap) side in the short term. We think the odds of a rise are greater than a decline at this point.
However, the election is a big uncertainty and no one can be sure how the market will react. A Trump victory is likely to see stocks rise based on pro-growth policies, and a Biden win may also see stocks rise in anticipation of more stimulus. It may be a good time to buy.
This commentary is for informational purposes and is not investment advice, an indicator of future performance, a solicitation, an offer to buy or sell, or a recommendation for any security. It should not be used as a primary basis for making investment decisions. Consider your own financial circumstances and goals carefully before investing. Past performance cannot guarantee results.
