by William Henderson, Vice President / Head of Investments
Markets ended the week of September 25, 2020 in mixed territory with the Dow Jones Industrial Average down (1.8%), the Standard & Poor’s 500 Index down (0.60%) and the NASDAQ up 1.1%. While mixed markets are always confusing, it bears understanding why there is a divergence. Industrial companies are struggling, and we saw that with the Durable-Goods Orders number released last week by the Commerce Department, rising only 0.40% in August; which was much lower than economists’ predictions of 1.80%. Yet, technology companies continue to do well as online shopping, virtual connectivity and other e-commerce related equities helped push the NASDAQ higher. Wall Street and Main Street are seeing different things. 

The good-news, bad-news stories do not really mask the continued ongoing uncertainty impacting the economy. Few of our market disruption events have been quelled. COVID-19 pandemic is waffling between a vaccine and a spike; and which one will come first. The presidential election is no one’s guess. As of September 28, 2020, the top battleground state’s average according to Real Clear Politics shows Joe Biden winning by a thin 3.8 points. Is that enough to cover the “silent majority Trump vote?” The recession is lingering but good news abounds with record-low mortgage rates fueling a booming housing market. Last week, the Commerce Department said sales of new single-family homes rose 4.8% in August to a seasonally adjusted annual rate of 1.01 million! August 2020 sales were 43% above the year-earlier level. Low rates continue to fuel mortgage refinancing as well. Social unrest and protests continue and could actually increase as the Senate moves ahead with the confirmation of Judge Amy Coney Barret to fill the SCOTUS seat vacated with the death of Ruth Bader Ginsburg. The byproduct of the confirmation battle and the concomitant unrest is that any hope of a third round of fiscal stimulus gets tossed aside while both parties wrestle with the issue of the week instead. 

While the lack of further fiscal stimulus is a drag on the economy, a bright spot is the strength of the private sector and huge pent up cash reserves sitting in money market funds and bank deposits. Private sector cash holdings have surged during the pandemic. According to the St. Louis Federal Reserve Bank, the personal savings rate as a percent of disposable income was nearly 18% as of July 2020, a surge from January 2020’s level of 7.6%. Further, the sum of U.S. money market assets plus commercial bank deposits has grown by nearly $4 trillion, to $20 trillion, during the pandemic and now sits at more than 100% of GDP. This cash hoard can easily fill the void that a missing third fiscal stimulus package leaves. Being locked down as the U.S. consumer has been since March 2020, has allowed a massive buildup of ready cash and reserves, that once released, could fuel the economic rebound we need. Watch for cash to flow into the economy as each of our unknowns gets worked out or fizzles away. With the election just 36 days away, that unknown may become a known fairly soon. Lastly, Speaker of the House, Nancy Pelosi, is scheduled to meet with Treasury Secretary Stephen Mnuchin this week to continue discussions of a third fiscal stimulus package. We expect markets to continue to waffle, with pull backs and rallies each week because uncertainly is bad for traders and the markets and there is simply too much uncertainty going around these days. A long-term perspective must be taken in conjunction with a balanced, well-designed investment portfolio.

by William Henderson, Vice President / Head of Investments
For a week with a lot of big news events: super-successful IPO of Snowflake, Big-10 Football starting up again and the sad news of Supreme Court Justice Ruth Bader Ginsburg dying; the Dow Jones Industrial Average changed a whole 0.1% over the week ended September 18, 2020. That is not to say we didn’t have some big swings in the market during the week; and the broader markets did close down for the week with the S&P 500 (0.60%) and the Tech-Larded NASDAQ (0.60%). Year-to-date returns remain mixed running in the face of some truly epic headwinds with the DJIA (3.1%), the S&P 500 +2.8% and the NASDAQ +20.3%. The markets continue to hope for something beyond the Fed’s open spigot of free money and believe Washington will finally agree on the next round of fiscal stimulus. In that regard, watch for Washington to be solely focused this week on a battle to replace Ruth Bader Ginsburg on the U.S. Supreme Court. There was interesting news from the U.S Commerce Department on Friday in an order prohibiting certain transactions of two Chinese e-commerce giants, Tencent’s WeChat and ByteDance’s TikTok. This is all part of the continuing U.S./China trade negotiations. Oracle & Wal-Mart are still in talks to buy the U.S. operations of TikTok but have yet to resolve the final details; even after receiving approval from President Trump.

The Fed’s two-day policy meeting wrapped up on Wednesday with Fed Chair Jerome Powell revealing that policymakers expect official short-term rates to remain near 0% through 2023 and tempered their expectations for the size of the economic contraction in 2020 from 6.5% to 3.7%. Mr. Powell seemed concerned that the Fed’s massive monetary accommodation may be reaching its limits and instead began calling on Washington for a stronger fiscal boost to aid the economic recovery.

In more local news, Governor Wolf loosened restrictions on gatherings, specifically allowing restaurants to operate at 50% capacity rather than a paltry 25%. While not a full-blown removal of COVID-19 related restrictions, it does point to a lessening impact the global pandemic is having on the economy. A vaccine is still underway, with many global companies moving into a vaccine trial phase. Along with the explosion in virtual conferencing and working from home, cash usage is taking a dive while electronic payments are on the rise. According to an article in Barron’s this weekend, the volume of ATM withdrawals tumbled more than 12% in the second quarter. Companies that provide services allowing electronic payment transactions will continue to grow and benefit. As we saw the bank building replaced by the ATM, will we see the ATM replaced by the smartphone? Perhaps by the next generation.

It could be a tumultuous week with so much uncertainty abounding: 1) Washington (additional stimulus plan, replacing RBG), 2) Wall Street (TikTok, economic data, Fed) and 3) Main Street (Presidential Election, social unrest, COVID-19 resurgence in the fall). Remember, the markets hate uncertainty and we have a lot of that around these days. Keep a long-term view on your financial plans and try and look past the noise.