Last week’s dominant news story, at least where the markets were concerned, was the ongoing saga over another COVID-19 relief package. Democrats and Republicans have been in ongoing negotiations over passing a second economic stimulus package. The size of the package and specific allocations of the funds are the major sticking points.
On Monday hopes were high that a deal would be reached – and the market (the Dow Jones Industrial Average) closed over 450 points up. On Tuesday President Trump tweeted that he had instructed his representatives to halt negotiations until after the election. The market responded in kind with a 376 point drop. Wednesday the President seemed to reverse course and said he would entertain a limited package. Momentum gained over the remainder of the week as that limited package grew in size. Ultimately the market ended up over 850 points. The S&P 500 and NASDAQ also closed with significant gains.
So far October has proven to be a positive month for the markets. Returns are beginning to approach the highs of earlier this year. However, much negative news remains in the headlines: many states are experiencing a surge in COVID-19 cases, the presidential election remains contentious, many businesses are struggling to survive and unemployment rates remain high. Given that backdrop, is there a disconnect between the markets and the “real world?”
We recently attended a presentation by Mark Eibel, Chief Investment Strategist for Russell Investments, who addressed that very question. His simple explanation for current market conditions is: H-I-S.
*H (Hope): There is a great deal of hope that a viable vaccine for the virus will be available soon. In addition, we know a great deal more today than we did even a short time ago. There are also a number of treatments that seem to shorten the length and severity of symptoms for those who contract COVID-19.
*I (Interest Rates): The Federal Reserve has been very aggressive about keeping interest rates low. They have even issued guidance that rates will likely remain unchanged until the year 2023. That accommodative policy is very positive for the markets.
*S (Stimulus): Further economic stimulus, which now looks likely, will continue to bolster the economy.
Our economy has a lot of ground to make up as a result of this crisis. But there are also reasons to be optimistic. As always, if you have questions or concerns, please don’t hesitate to contact us. We value your partnership, confidence and trust.