by William Henderson, Vice President / Head of Investments
Investors remained focused on renewed talks for a stimulus package – unlikely before next week’s Presidential Election, but hopefully before year-end. House Speaker Nancy Pelosi and Treasury Secretary Stephen Mnuchin continue daily squabbling over the deal to provide fiscal assistance to Americans. This continued uncertainly made for a down week on Wall Street with the Dow Jones Industrial Average down -0.9% for the week, while the S&P 500 index was down -0.5%, and the Nasdaq down -1.1%. U.S. Treasury Bond yields continued their slow grind higher again last week and we saw the 10-year U.S. Treasury bond tick up 10 basis points to 0.84%. This move higher in bond yields added additional steepness to the yield curve. The 2s-10s spread (the difference between 2- year Treasury Notes and 10-year Treasury Bonds) widened to 69 basis points, the largest difference thus far in 2020. This is a clear indication that investors continue to bet on an economic recovery starting sooner and being stronger than expected. Year-to-date returns remain mixed with Dow Jones Industrial Average down -0.7%, while the S&P 500 index is up +7.3%, and the Nasdaq up a healthy +28.7%.

Traders and betting markets are still pointing to a Biden win on Election Day and some pointing to a “Blue Wave” victory next week. At the same time, according to Real Clear Politics, the Top Battleground States Average poll shows Biden ahead by +3.8 points; nearly identical to the spread Hillary Clinton had (+3.5 points) in 2016 vs. Donald Trump. The full U.S. Senate voted on Monday (10/25) to confirm Judge Amy Coney Barrett as a Justice of the U.S. Supreme Court. Both sides are pointing to the confirmation as a reason for larger turnout for the Presidential Election. Thankfully, the election is just a week away and that market unknown will fade away for a year or two. 

While we do not know the outcome yet of the election nor the markets’ reaction to that outcome, we are certain of a few things impacting investors. First, we know the Fed is committed to all monetary stimulus, including a zero-interest rate policy, needed to fuel the economic recovery. Second, we know that corporate earnings are improving, and corporate balance sheets remain healthy. And lastly, there is hope for a vaccine for the COVID-19 pandemic before year end. Stay focused on long-term returns and proper diversification rather than political noise and short-term market moves.

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.