“Can you hear me now?” Verizon wireless commercial circa early 2000s
Following September’s reversal of fortune for the markets, where the S&P was down 4%, October generated an additional roughly 2.7% negative return as a lot of the bounce-back strategies post-lock down seem to have been fully priced by the market. With increasing numbers of positive Covid 19 tests across the US, Europe and many other countries, the reality of living in a pandemic world appear to be returning to the market’s focus.
The overhang of the US Election provides another cause for concern for asset valuations. Is an expected Biden victory bad for financial assets, as increasing top marginal tax rates, higher capital gains taxes and other green economy regulatory policies work their way through profits, earnings, and valuation models? Or, is the outlook for more deficit spending by the Democratic party that may control the legislative and executive branches of government in short order bode well for economic growth through programs for consumer spending and debt relief? Is there an outside chance of delayed election results, if key state electors are not a foregone conclusion by November 4th?
Our crystal ball cannot answer these questions, but we note that this too shall pass, both in terms of the virus as well as the political landscape. What we are confident in, is that economic growth will continue, the Federal Reserve will keep rates artificially low despite record federal deficits, and the earnings growth outlook going into 2021 will have generally easier comparisons to 2020. Any near-term volatility, could prove to be a decent buying opportunity, particularly for some of the value-oriented assets that have not participated in the bounce rally that ended in early September.SGR Monthly Dashboard November 2020