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Q3 2020 Market Recap

by
Zacc Call

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Q3 2020 Market Recap

Before you bet the farm on the election, consider how many variables are in play.

These include business metrics like sales, expenses, debt, inflation, wage changes, tax rates, interest rates and more.  

The stock market value is the public’s perception of how much a bunch of businesses are worth. The market is not the economy, although the two are correlated.

We are not convinced you can predict the winner. If you could, it would be nice to be able to use this historical data to predict the future market, however, administration changes have coincided with some major external events. For example, Clinton to Bush II was in the middle of the dot-com frenzy to crash.

Bush II to Obama was only three months from the bottom of the Great Recession. It is important to note that election years have often been below-average returning years due to the upcoming uncertainty.

The president has less to do with market performance than most investors think. We believe the favorable average returns listed in this quarter’s chart are more of a product of businesses finding a way to grow than red or blue.

U.S. Equities

U.S. large companies continue to lead as the COVID-19 recovery continues. While mid-and small-sized public companies have managed to come closer to breaking even, larger companies with names such as Amazon, Google and Apple continue to be the best performers.

Foreign Equities

Although foreign stocks have not kept up with their peers from the U.S., foreign equities have done well even with the COVID-19 pandemic weighing heavily on global economies. Emerging markets have actually done far better than developed market stocks, which has been surprising given the current global economic concerns.

Fixed Income

The effect of the Federal Reserve’s liquidity injections and lowering of rates has been a tailwind across all fixed income sectors. With rates at all time lows, yields are declining and the 10-year treasury note continues to hover near all-time lows. Federal Reserve Chairman Jay Powell signaled that the Fed expects short-term rates to remain low for some time in the future.

10-Year U.S. Treasury Yield as of Sept. 30 = 0.677%

Summary

What a difference six months can make. If you read our Q1 market recap, you noticed double-digit painful declines in most asset classes for the previous 12 months. Look at how only a six-month window has completely reversed the rolling 12-month returns. A MagnifyMoney.com survey of 1,000 individuals (https://www.magnifymoney.com/blog/news/investor-pandemic-regret-survey/) reported that 42% of investors sold stock during the pandemic and most regret it (24% sold all their stock, 19% sold some; totals don’t add up due to rounding). Other studies from large firms like Fidelity produced similar results. We are saddened by how high the general selloff rate was and simultaneously proud of the families we serve. Around 2% of our households sold stock to be more conservative after losses. About 0.5% went to cash. More than 98% of you held on strong. Congratulations.

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