Market Currents

• October’s Volatility. The stock market hit a speed bump in October, as investors reacted to a global resurgence of the coronavirus, concerns over the possibility of additional economic shutdowns or restrictions, the realization that any US fiscal stimulus would likely come after the election, and a general anxiety over the actual election itself.  Historically, October tends to be the weakest month during election years.  The S&P 500 declined 3% for the month, not a terrible outcome given the near-term uncertainties.  For the year, it was up 3% at month-end.

• Road to 270. Though we still await final certified state counts, former Vice President Joe Biden is projected to be the winner of the 2020 election, and will be the country’s 46^th  President Trump has not yet conceded the election, and has mounted multiple legal fights contesting the transparency and accuracy of vote counting, but to little avail in the courts.  A Biden administration likely returns the US to a more engaged role with Western allies on defense, trade, and climate concerns, although the confrontational relationship with China undertaken by President Trump may continue.  The chances are high for divided government, pending the outcome of Georgia’s two Senate elections in January.

• Resurgence, and Hope. Covid-19 is surging again throughout the US, with new case counts and hospitalizations setting daily records.  Thankfully, better therapies have reduced fatality rates, but even so, we are losing over 1,000 persons daily at present.  We have recently been dealt very promising vaccine news, however, with trials from Pfizer and Moderna showing over 90% effectiveness in preventing the disease.  Other vaccines are soon expected to be reporting similar promising results, with fast-track approvals and commercial shipments commencing in the next several weeks.  Rollout of vaccines to the broad population will take several months.

• Big Picture View. Lost in all the political and Covid headlines is the ongoing economic recovery in the U.S.  The economy continues to add jobs, if at a slightly lower pace than over the summer.  Durable goods orders continue to expand, and home and auto sales are clipping along at a healthy rate.  Corporate earnings are showing signs of improvement.  The Federal Reserve and global central banks are committed to maintaining aggressive monetary support.  Last, most investors continue to believe that a large stimulus package will be passed by Congress at some point in the coming months, regardless of who sits in the White House.

• Portfolio Construction. As we move closer to the end of 2020, we suspect political risks may remain top of mind in 2021.  To better cope with episodic volatility, we continue to favor companies with strong balance sheets and competitive positioning in their respective industries as the first line of defense.  We have been taking profits and adjusting the sizing in some of our growth names that have benefited from the tremendous price run-up over the past few months.  Our strategies are built for the long run, and designed to withstand most near-term uncertainties.  We continue to maintain a watchful eye on the markets and economy on our clients’ behalf, and remain ready to act should facts and circumstances change.