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.