Community Bike Works SPIN-a-Thon starts this weekend – Sunday, September 20.
Bike mentoring keeps spinning through COVID-19, and so do we. Join TeamVNFA to celebrate 25 years of Earn a Bike with 25 days of competition! Learn more about and share the impact of Community Bike Works’ programs for young people in our area. And, of course, Consider supporting our team’s fundraising effort: http://fnd.us/81ht9a?ref=sh_29Vn7b.
Stay tuned for VNFA sponsored ‘flat tire’ photos and treasure map visits. LET’S RIDE!!!
by William Henderson, Vice President / Head of Investments The U.S. equity market finished the week on September 11, 2020 lower across all three markets: Dow Jones Industrial Average (1.7%), S&P 500 Index (2.5%) and the tech-heavy NASDAQ (4.1%). The unknowns we have mentioned in previous weeks continue to haunt the markets: continued COVID-19 pandemic and the search for a vaccine, the U.S. Presidential Election, the lingering but recovering U.S. Recession and finally political and social unrest bordering on mass protests. As if that’s not enough, we can toss in wildfires on the West Coast and hurricanes on Gulf Coast. Given all that is being thrown at the economy, the recovery continues its slow slog towards normalcy. We may have four unknowns, but we have one known and it is a really big one. It is Jay Powell and the unstoppable power of the FED. Mr. Powell has promised to give the markets and the economy historic low rates into 2022. Practically “free” money, trillions in economic stimulus, an obeisant view of inflation and we have a FED that is all about forcing an economic recovery. Treasury Secretary Mnuchin continues to work on an additional stimulus package but Republicans and Democrats cannot come to an agreement.
We continue to see evidence that pockets of the economy are doing very well. Amazon.com announced on September 14, 2020, that they will be hiring 100,000 full- and part-time employees across the U.S. and Canada. Anyone that has a doorstep or front porch in the U.S. is probably used to seeing the cardboard smile boxes sitting there with recently ordered goods from Amazon.com. Other stories to watch: Oracle’s winning bid for the U.S. Operations of the video-sharing app TikTok; the massive, potentially record-setting $30 billion IPO of the Chinese fintech titan Ant Group, co-founded by Alibaba billionaire Jack Ma; and the ongoing global race for a COVID-19 vaccine.
It continues to be a battle between the unknowns and the knowns. We have major issues occurring in 2020 that continue to worry the consumer (Main Street) but the FED is doing all it can to push a recovery, and the markets (Wall Street) seem to like that story a little bit more. Our advice: Stay diversified and keep a long-term view of markets and the economy.
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THE NUMBERS 30-year mortgage rate is as of 8/28/20.
Sources: Index Returns: Morningstar Workstation. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. Three, five and ten year returns are annualized. Interest Rates: Federal Reserve, Mortgage Bankers Association.
MARKET HEAT MAP
The health of the economy is a key driver of long-term returns in the stock market. Below, we assess the key economic conditions that we believe are of particular importance to investors.
US ECONOMY
CONSUMER HEALTH
NEGATIVE
GDP declined at an annualized rate of 32.9% in Q2, the fourth-largest fall in the last 100 years. In mirror opposition, Q3 GDP is expected to represent the greatest quarter-over-quarter increase in history, coming in somewhere between 25-35% on an annualized basis.
CORPORATE EARNINGS
VERY NEGATIVE
With over 90% of companies in the books, S&P 500 earnings have fallen by around 33% in Q2, the sharpest year-over-year decline since 2008. However, some companies in certain sectors have reported strong results, such as in Retail and Cloud Computing.
EMPLOYMENT
VERY NEGATIVE
About 1.4 million U.S. jobs were added in August, in-line with market expectations. The American economy has now added back roughly half of the 22 million jobs lost since March. The unemployment rate remains well above historical averages, at 8.4%.
INFLATION
POSITIVE
Core inflation has come in at 1.7% over the last twelve months. The Fed plans to allow inflation to temporarily overshoot its 2% target such that the long-term average is 2%. Inflation has been tame since the Great Financial Crisis, less than 2%.
FISCAL POLICY
VERY POSITIVE
Weekly unemployment benefits are now being disseminated on a state-by-state basis, through applications to a Federal slush fund, and total $300 per week, versus the previous rate of $600 under the now-expired Federal plan.
MONETARY POLICY
VERY POSITIVE
The Federal Reserve has supported asset markets with unprecedented speed and magnitude in response to COVID-19. In our view, Fed President, Jay Powell, reaffirmed the central bank’s accommodative stance in his virtual address “at Jackson Hole”.
GLOBAL CONSIDERATIONS
GEOPOLITICAL RISKS
VERY NEGATIVE
The relationship between the US and China, the world’s two largest economies, was already weakened by the trade war but has deteriorated further as a result of COVID-19.
ECONOMIC RISKS
VERY NEGATIVE
The impacts from COVID-19 were as swift and pronounced as any shock in modern times. Robust monetary and fiscal stimulus stabilized the system, however, economic activity remains well-below that in 2019, and uncertainty remains high.
The “Heat Map” is a subjective analysis based upon metrics that VNFA’s investment committee believes are important to financial markets and the economy. The “Heat Map” is designed for informational purposes only and is not intended for use as a basis for investment decisions.
