VNFA NEWS

Welcome Zaesha Boirard to Team VNFA!
She will be working remotely from the Bethlehem office as Administrative Assistant for the Tax Department. She will be responsible for coordinating processes across the tax team, and managing client data, documents and communications. Zaesha joins the team with many years of administrative and client service experience, and she is committed to the VNFA client -first culture.

Current Market Observations

by William Henderson, Vice President / Head of Investments
Equity markets were mixed last week as headlines threw bad news after good news. Early in the week, positive COVID-19 vaccine news improved investor sentiment, but rising new cases and increased activity restrictions across states cast concerns on the economic recovery. The potential for a divided U.S. Government which could drag on any new fiscal stimulus is also weighing on the markets. For the week, the Dow Jones Industrial Average returned -0.3%, the Standard & Poor’s 500 Index returned -0.8%, while the NASDAQ returned +0.2%. The benchmark 10-year U.S. Treasury note stood at 0.88% at the end of the week.

As noted above, the short-term market moves are impacted by headline news events. That said, parts of the economy continue to do very well, such as the U.S. housing market. October existing home sales were +4.3% year over year and new starts were +4.9% year over year, both beating economists’ expectations. Further, according to Goldman Sachs, the NAHB housing market index reached a record high of 90 for November. Housing remains a resilient and sturdy foundation of the economic recovery. The American consumer continues to show strong financial wherewithal. According to the Federal Reserve Bank of St. Louis, Real Disposable Personal Income stood at $15.8 trillion in September 2020, up from $15.0 trillion in September 2019. 

Further, Average Hourly Earnings of All Private Employees was $29.50/hour, up from pre-COVID-19 March 2020 at $28.69/hour. Lastly, according to Bloomberg, consumers have used their cash piles to pay down debt and secure record-low mortgage rates due to an ultra-easy Fed policy fueling a steady wave of refinancing. 

The Thanksgiving holiday will give us a shortened work week and potentially quieter trading days. The Christmas shopping season will kick-off with Black Friday this week but what does that mean when the shopper is confined to their home? Watch for online retailing to explode this year with firms that have the logistics for effective online shopping benefiting most. Black Friday could morph into Cyber Friday as working from home collides with closed malls and a consumer flush with cash.  

We have three pharma companies announcing a vaccine: AstraZeneca, Pfizer, and Moderna. The Fed remains on guard to supply as much liquidity and stability needed to fuel the economic recovery. A COVID-weary consumer stands on the sidelines flush with cash but locked down as COVID-19 cases spike. In the short term, the markets continue to waffle on good news/bad news headlines but year-to-date, all three broad indices remain positive: the Dow Jones Industrial Average at +2.5%, the Standard & Poor’s 500 Index at 10.1%, and the NASDAQ at +32.1%. Remain committed to long-term goals, see through the noise and watch the markets prove they are more efficient than the consumer.

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 increased at a 33.1% annualized pace in Q3. The U.S. economy has now recovered about 2/3 of its output lost to the COVID-19 pandemic.

CORPORATE EARNINGS

NEGATIVE

As more than 90% of S&P 500 constituents have reported Q3 results, the index’s earnings are down 7-8% from the year-ago period. This compares to Q2 2020, in which S&P 500 earnings were down by 1/3 from the comparable 2019 quarter.

EMPLOYMENT

NEGATIVE

As of October’s end, the U.S. unemployment rate stood at 6.9%, well below where most expected the metric to be at this point some months ago. The unemployment rate has consistently declined since peaking above 14% in April.

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

A second major COVID-19 stimulus bill is likely to be passed over the coming months.

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.

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.