Markets Fall as COVID-19 Cases Jump - Adviser Investments

Markets Fall as COVID-19 Cases Jump

November 2, 2020

Please note: This update was prepared on Friday, October 30, 2020, before the market’s close.

Stocks fell this week on a combination of pre-election uncertainty and steeply rising COVID-19 cases. Not even the high-flying tech stocks were able to hold the line, as Facebook and Apple sold off on Friday morning after their earnings reports disappointed traders.

In the near term, medical data and politics are driving market momentum. Longer term, earnings, interest rates and economic data are key. Our portfolios are designed to allow us to manage through myriad short-term risks while we pursue long-term opportunities.

Divergence among sectors, firms and industries has been one of the strongest trends in the economy since the pandemic began, and one of the most glaring examples is the returns for the two best-known U.S. stock indices. Through Thursday, the Dow Jones Industrial Average is down 4.8% for the year, while the broader S&P 500 is up 4.0%. The MSCI EAFE index, a measure of developed international stock markets, is down 10.3% for the year. As of Thursday, the Bloomberg Barclays U.S. Aggregate Bond index’s yield stood at 1.23%, down from 2.31% at the end of 2019. On a total return basis, the U.S. bond market has gained 6.4% this year.

Growth Is Good; More Is Needed

Just days away from the election, the pundits are having a field day with poll numbers. At Adviser Investments, we’ve been focused on a different number: The first estimate of how quickly the economy rebounded during the just-ended third quarter.

The Bureau of Economic Analysis said Thursday that the U.S. economy expanded at a 33.1% annualized rate in July, August and September—subject to revision of course. That number represents 7.4% growth since the end of June, bringing the size of the U.S. economy up to about $18.6 trillion, which remains $670 billion, or 3.5% below where it stood at the start of the year. That’s a lot of shrinkage even after a record-setting quarter of growth. And it’s almost $1 trillion smaller than where the economy would have stood had we continued on the growth path established in the second half of 2019.

Note: Chart shows inflation-adjusted Gross Domestic Product values using reported numbers from the Bureau of Economic Analysis as well as estimates from a survey of market analysts and a hypothetical growth path had there been no recession in 2020. Sources: The Bureau of Economic Analysis, The Wall Street Journal, Adviser Investments.

Still, the latest growth figure is better than what some economists had predicted and, overall, a very positive report. Growing 7.4% in three months is a solid start to digging ourselves out of the hole we found ourselves in just a few months back. But we need to keep things in perspective. As is true for our day-to-day lives, the U.S. economy has a long way to go before it’s fully back to normal—and it will take more than three or even six months to get there.

Stimulus Decision May Fall to Fed

With Congress in recess until after the election—and with the possibility of a contested outcome still in play—it seems all but certain that the U.S. economy won’t be getting any additional fiscal stimulus before the end of the year. In contrast, the European Central Bank (ECB) announced this week that they will be putting together a stimulus package for December to help ease the economic burden as cities from Dublin to Paris to Munich have announced lockdowns.

Some may see the lack of stimulus in the U.S. as a bullish sign—that somehow policymakers believe we’re on a recovery course and additional support is not needed. We disagree and think that the ECB is on the right track.

With Congress out of action and U.S. COVID-19 infections hitting an all-time high on Thursday, all eyes now turn to the Federal Reserve and their announcement next week on interest rates. Fed Chair Jerome Powell’s live press conference is always the day’s main event, but given coronavirus concerns and the fact that it will fall the day after the election, this could be the press conference of the decade. Stay tuned.

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Financial Planning Focus:

Financial Planning in Your 40s

You’re well-established in your career and hopefully earning more than you spend. You may have your own family as well as aging parents to look out for. On top of that, you’re nearly starting to look ahead towards retirement. That’s a lot to manage—and financial planning can help. Here are five tips to strengthen your financial foundation during your 40s:

  1. Protect Yourself With Insurance. You can’t put a price on peace of mind. Disability insurance can help protect your income if you are unable to work. Life insurance can help provide for your loved ones if you pass away. Health insurance is an absolute necessity. Homeowners insurance is another essential. And consider a personal umbrella liability policy that is roughly equal to your increasing net worth.
  2. Focus on Retirement Savings. If you don’t already, begin contributing at least 10% of your pre-tax income (or up to the annual limits if you can afford it) to your retirement savings accounts (e.g., 401(k), IRA, etc.) right away. Yes, you can include employer contributions, if any, in your tally. Consider bumping up your contribution percentage every time you receive a raise.
  3. Invest Outside of Retirement Accounts. In addition to participating in your employer-sponsored retirement plan, consider opening a brokerage account to grow your savings above what you’d earn in interest with a bank account. If you have children, give us a call about setting up a 529 plan to prepare for their future educational expenses.
  4. Talk to Your Parents About Finances. Your parents may be nearing or into retirement. Now is a great time to have an honest discussion with them about their plans as well as their finances. This will give you visibility into whether you may need to provide them with some support in the future. For more information, listen to our podcast on the topic.
  5. Create a Financial Plan. As your financial situation becomes more complex, it’s even more important to have a clear view of your assets, liabilities and broader financial status. A tailored financial plan will provide that.

This list is certainly not exhaustive, so consider speaking to a professional if you have questions about your own financial plans during this important decade.

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Adviser Investments’ Market Takeaways

Calm and clarity have been sorely lacking when it comes to market news recently—that’s why we’ve begun providing Today’s Market Takeaways, short videos in which a member of our investment team analyzes what the market’s telling us.

You can find two new Market Takeaways videos on our website. Research Analyst Liz Laprade looked at whether big tech’s outstanding stock performance will be imperiled by federal antitrust actions and Vice President Steve Johnson talked about how traders’ reaction to news can be bigger than the event that triggered it.

Looking Ahead

Next week brings several key economic reports, including reads on manufacturing and service sector activity, construction spending, car sales, ADP and non-farm payroll jobs reports and news from the Federal Open Market Committee (FOMC) meeting.

As always, you can visit www.adviserinvestments.com for our timely and ongoing investment commentary. In the meantime, all of us at Adviser Investments wish you a safe, sound and prosperous investment future.


Please note: This update was prepared on Friday, October 30, 2020, before the market’s close.

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