Broker Check

Week of October 4, 2020

October 05, 2020

Focus on the Third Quarter (and there is an election ahead!)

There is so much noise out there right now, that I decided to focus on the election and current events and abandon our prior format for a bit.  Therefore, I guess this weekly outlook will focus solely on Black Swans and Other Market Tidbits!

Don’t fight the Fed –  When the Fed is being extremely accommodative with interest rates and stimulus, stocks generally rise.  However, with the passing of Ruth Bader Ginsburg, all the eyes in the Senate turned to the vacant SCOTUS seat.  Due to this, it was already looking highly unlikely that the Congress would address a deal on additional COVID stimulus prior to the election.  Now with President Trump and other Senate members contracting COVID, the Senate is fighting each other on whether they can actually meet to vote.  The rest of us have been meeting virtually for over 7 months, but evidentially our fearless leaders do not have the capacity to do what the rest of the world has been doing for over half a year. 

Reading the tea leaves –   What does it mean when the President announces that he and the FLOTUS have COVID and the markets rally to end flat for the day?   I see three possible scenarios:

  • The markets have already priced in a Biden win and shrugged off the President’s diagnosis, or;
  • The markets believe there will be a Democratic sweep and more stimulus is likely after the elections, or;
  • The markets believe that this will make it more likely that the Republicans will come to the table to pass more stimulus prior to the election.

We’ve got cash! – Americans actually had 4.9% MORE personal income than in February.  This is because of the government stimulus.  We have written a check that future generations will have to pay.  A real economic recovery will require states to open.  With several states re-opening this will force other states to open or face political consequences.  However, more money means more spending.  Supply and demand says this means inflation.  Add in the likelihood that overseas supply chains will move back into the US for national security reasons.  Stuff costs more to make here and that equals inflation.

Why does the market continue to go up? – Just ask Bill Ackman, “the stock market represents the strength of the best and most dominant, best-capitalized companies, and the stock market that doesn’t exist is a market of private, family-owned mom-and-pop stores, and that’s the decimated part of America right now.

Unemployment – Numbers came out last Friday.  Payroll was up, but quite a bit below what analysts had been anticipating.  Leisure/Hospitality, Retail, and Healthcare had gains several times higher than “normal” monthly gains.  These industries were the hardest hit initially, so re-hiring in those areas is beginning to come back.  However, the Labor Force Participation dropped month over month.  Some people are just giving up and becoming permanently unemployed.  And Disney slashed 28,000 workers.  We’ve got a way to go.

As always, we welcome your input, questions, and feedback.

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