The Numbers & “Heat Map”

THE NUMBERS

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

S&P 500 earnings fell by around 1/3 in Q2, the sharpest year-over-year decline since 2008. Q3 earnings season, which is just beginning, is expected to show strong improvement over Q2.

EMPLOYMENT

VERY NEGATIVE

The unemployment rate declined to 7.9% in September, from a peak of 14.7% in April. While the rebound is material, the jobless rate remains well above the historical average.

INFLATION

POSITIVE

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

At this point, it appears as though a second major coronavirus stimulus bill will not be passed until after the Presidential Election.

MONETARY POLICY

VERY POSITIVE

The Federal Reserve has supported asset markets with unprecedented speed and magnitude in response to COVID-19.

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, particularly with the election just eight days away.

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.

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