by William Henderson, Vice President / Head of Investments
As we move closer to year end, our four major uncertainties continue to drag on and on without an end in sight before the Presidential Election. Polls keep pointing to a clear Joe Biden win, but we saw the same polling data pointing to a Hillary win in 2016 which leaves us very skeptical of polls. Each time a vaccine for COVID-19 moves closer to release, cases spike as they have around the world this week with many countries including France, Italy and the UK showing very large one-day and one-week increases in virus outbreaks. Last week wrapped up testimonies for Amy Coney Barret and it looks as though a full vote in the U.S. Senate is possible this week. With the SCOTUS drama behind us, Washington can revisit the stimulus package that Treasury Secretary Steven Mnuchin and House Speaker Nancey Pelosi have been playing volleyball with lately. Thankfully, the hearings for the SCOTUS appointment have been congenial when compared to previous hearings and this has put a nice damper on related protests and social unrest. We continue to see positive earnings releases and clear EPS beats versus Wall Street estimates. That tells us the recession is behind us and most analyst underestimated the pace at which U.S. companies will recover from the recession in the 1st and 2nd quarter. Further, company balance sheets remain healthy and borrowing rates and levels remain very favorable for Investment Grade and High Yield borrowers.

Unfortunately, the increase in COVID-19 infections could prompt government authorities to usher in new curbs on openings for such venues as bars, restaurants, and movie theatres.   The consumer remains key for a healthy and robust recovery. Online shopping, working from home, and virtual conferences/meetings continue to be the norm for everyday life around the world.  Last week’s Amazon Prime Day(s) was reported to set a new record for sales; but the online retailer was hesitant to release actual numbers. One number released was the $3.5 billion in sales for third-party sellers on Prime Day. This really shows the extended power of Amazon and how it helps small businesses around the country. The third-party business of Amazon is fueled by its dominant cloud services provider: Amazon Web Services (AWS).  

The FED remains on the sidelines with its full offering of weapons to fuel the economy and add critical liquidity to the markets. This one constant variable in a world of unknowns certainly adds a needed level of stability, which is clearly pushing the markets higher year-to-date. As of October 15, 2020, the Dow Jones Industrial Average was flat at -0.16%, but the S&P 500 Index was up +7.8% and the NASDAQ was up +30.6% for the same period; reminding us of the importance of diversification and exposure across the broader markets.

by William Henderson, Vice President / Head of Investments
With September in the books and the fourth quarter on everyone’s mind, the markets looked to the renewed stimulus talks and posted some of the best weekly returns in months. For the week ending October 9, 2020, Dow Jones Industrial Average increased +3.3%, the S&P 500 improved by +3.7% and the NASDAQ was up +4.6%. These weekly returns moved all three broad markets indices into positive territory for the full year of 2020; with the Dow at +0.2%, S&P 500, +7.6% and the NASDAQ up a stunning +29.1%. While equity returns have given investors something to smile about, bonds continue to offer nominal returns even in the face of a steepening yield curve. The two-year U. S Treasury Note moved two basis points higher in the week to 0.16% and the 10-year U.S. Treasury Note rose eight basis points to 0.79%. Low rates continue to push down mortgage rates which are fueling a strong rebound in new home sales. According to Freddie Mac, the average 30-year fixed rate mortgage for the week ending October 9, 2020 was a record low of 2.87%. With such low rates, buyer demand remains robust with first-time buyers coming into the market. The demand is particularly strong in more affordable regions of the country such as the Midwest. The binding theme on all three markets – equities, bonds and real estate – is the Fed’s unwavering goal of keeping rates lower for longer and maintaining a near Zero Interest Rate Policy (ZIRP). 

We continue to have concerns around a COVID-19 fall resurgence in cases. Concurrently, there is global cooperation on finding a vaccine and hopes remain that the FDA will approve one this year, with global populations actually being vaccinated by Q3 2021. Uncertainty remains around the Presidential Election, and although national polls show Joe Biden ahead over President Trump, these same pollsters and pundits had Hillary Clinton ahead by nearly the same margin in 2016. The markets seem to be pricing in a mixed or balanced government after the election rather than a “blue” or “red” wave. A mixed government typically keeps a lid on drastic policy changes by either party regardless of who is in the White House. This week watch for a fight over media camera time between the SCOTUS’ Amy Coney Barret hearings, renewed stimulus talks among Speaker Pelosi and Treasury Secretary Mnuchin, and the back and forth between President Trump and former Vice President Biden. 

Staying the course and maintaining a disciplined investment policy with a keen eye towards diversification and risk management remains our policy at Valley National Financial Advisors. While major uncertainty remains in macro terms, forces exist within the economy (Fed, mortgage rates, market liquidity) that continue to fuel positive returns in the broader markets.