by William Henderson, Vice President / Head of Investments
Is it really possible that we are taking out two unknowns in one week? Joe Biden wins the Presidency and Pfizer announces a COVID-19 vaccine that is 90% effective in trials. Wow! We are left with the recession and its recovery and social unrest as our remaining unknown events in 2020. Last week, we saw impressive returns in the markets with all three major indices trading up on the week. The Dow Jones Industrial Average gained +6.9%, the S&P 500 Index gained +7.3% and the NASDAQ gained +9.0%; putting their year-to-date returns respectively at: -0.75%, +8.6%, and +32.6%; proving once again that patience, long-term horizons and a sound financial plan are important.

Looking forward, we will most likely have a divided government and a strengthening economy as our tailwinds for the close of 2020 and even into 2021. Add to that a vaccine for COVID-19 that is 90% effective in clinical trials, continued monetary and potential fiscal stimulus and you see why the markets are rallying so strongly already this week.  Last week, Federal Reserve policymakers met on Wednesday and Thursday but announced no changes in monetary policy. In fact, the Fed’s post-meeting statement noted that the COVID-19 pandemic continues to meaningfully weigh on economic growth. Fed Chair Jerome Powell stated that the central bank still has monetary tools it can deploy to stimulate the economy, if needed. That said, the economy continued to add jobs at a better-than-expected pace with 638,000 new jobs added in October 2020; driving down the unemployment rate to 6.9% vs. 7.9% in September. The Fed was basing their statements and outlook on last week’s data and last week’s more or less global spike in COVID-19 cases.

  This week, Pfizer announced promising news about a potential vaccine for COVD-19. The market is seeing beyond the unknowns and is perhaps more efficient than investors realize. Although the presidential race is all but decided, a divided government remains a distinct possibility. The amount and timing of additional fiscal stimulus is still uncertain, what remains a certainty is the Fed keeping interest rates at near zero and with more arrows in their policy quiver. 

by William Henderson, Vice President / Head of Investments
That was quite a week. All three major market indices were down last week with the Dow Jones Industrial Average down -6.5% Standard & Poor’s 500 Index down – 5.6% and the NASDAQ down -5.5%. Technology led the averages lower even after four powerhouse firms beat earnings estimates: Apple, Amazon, Facebook and Google all topped analyst’s estimates but they also collectively spoke of lower guidance on revenues and slower growth going forward. Another piece of positive news that failed to give the markets a boost was the release of the 3rd Quarter year-over-year U.S. GDP at an astounding 32%. Offsetting the positives were across the board and around the world spikes in COVID-19 cases. Of course, we have the Presidential Election ending Tuesday evening. Finally, we will put to rest one of our unknowns for 2020.

Equity markets have been whipsawed this year, first staging the fastest the bear market on record in March before rallying to a staging a rebound not seen in 90 years. We have seen this volatility previously. Large swings were also a common feature of the 2008 financial crisis. In 2008, there were 42 trading days where the S&P 500 moved by more than 3%. So far in 2020, there have been 28 days where the S&P 500 has swung by 3% or more. Clearly, our collective unknowns that we frequently cite, continue to roil the markets.

The housing market continues to boom; and, by most measures, activity in the housing sector is running at its highest level since 2007. Thankfully, this is a rebound from Spring, when COVID-19 lockdowns all but halted activity in the sector. Record-low mortgage rates, demographic tailwinds, and a general movement out of urban locales into suburban regions continue to fuel the boom. The housing boom fuels related sector growth as well such as landscaping, appliances, carpentry, plumbing and HVAC, and household electronics. A strong housing market is an excellent base for a continued economic recovery into 2021 and beyond.  

With the markets being down so much last week, it is difficult to believe there are green shoots in our economy; however, looking at the fiscal and monetary stimulus alone, things are firmly in place for an economic rebound. Add to this any possibility of a COVID-19 vaccine in 2021 and the economy could see dramatic growth as the power of the consumer will finally be unleashed.  The election will decide the next President of the United States, but one person remains in office continuing to be extremely important to the financial markets – Jerome Powell. Mr. Powell is committed to keeping rates low for a long time. Low rates are fueling the housing boom (as mentioned above) allowing healthy firms to borrow at record-low levels, thereby improving their balance sheets and reducing the net interest expense of the federal debt.