Stabilization and Looking Ahead
While we are seeing the start of businesses reopening and establishing a new “normal,” with the uncertainty of the coronavirus’ full impact, we believe we are still in the “Stabilization” stage of this Bear Market. Moneta’s Investments Department gives us three things to know and to watch for in the week ahead.
3 Things to watch
Presidential Polls: With both conventions done and the nominees officially selected, we now head into the final two-month stretch of campaigning until the early November election. Odds are still currently favoring Biden to be elected, but Trump has seen a post-convention bump in the polls, which has modestly reduced Biden’s odds of victory. Eleven states are seen as “toss-ups” and will likely become a focus for both candidates. (Source: JPM/Goldman)
Second Coronavirus Relief Bill: Things continue to remain at an impasse as a sharp divide exists between the ultimate cost of such a bill. Negotiations are still occurring, but the odds of a relief bill any time soon appear limited.
Economic Releases This Week: Eyes will be on the Dallas Fed manufacturing, ISM manufacturing, employment and construction spending metrics for the status of the ongoing recovery in economic activity.
3 Things to Know
Dow Jones Changes: Exxon, Raytheon and Pfizer are all being removed from the Dow Jones Industrial Average with new additions – Salesforce, Amgen and Honeywell – joining the index on Monday, August 31, 2020. This was driven by Apple’s 4-for-1 stock split, which goes into effect on that same day; this will mean a reduction in the index’s weight in the Information Technology sector. The addition of Salesforce will specifically help partially offset that reduction. (Source: Standard & Poor)
Fed’s Inflation Framework: As noted by the fixed income team last Thursday, Fed Chairman Jerome Powell formally announced changes to the Fed’s approach to inflation. The Fed is now shooting for inflation that averages 2% over time, meaning inflation could moderately “overshoot” 2% at times – especially after periods where it was persistently below 2%. Decisions to raise interest rates in the future will be based on evidence that inflation had hit the target of 2% instead of reliance on forecasting rising inflation, which has been consistently wrong. Demographic changes, technology and globalization have all contributed to keeping inflation lower than one would have assumed. (Source: Fed)
S&P 500: The S&P 500 closed at an all-time high for a sixth consecutive trading session on Friday, while the Nasdaq Composite also reached a record. August has been a strong month with the S&P up a robust 7.2%, led by Apple’s 17.7% rise. The S&P 500 is now up nearly 10% year-to-date as of August 30, 2020, which seems light-years from the pain suffered in March.
Staying optimistic amid historic volatility
As we continue to work to flatten the coronavirus curve, we remain optimistic about the market’s resilience and stay steadfast in our investment plans. “Policymakers have made it clear that they will do whatever is necessary to support the economy and markets during this time,” said Moneta’s Chief Investments Officer, Bill Hornbarger.
Congress has reacted much more swiftly to 2020’s market challenges than in the past. Due to the efforts of policymakers during the last recession – the Global Financial Crisis (GFC) in 2008-09 – several policy tools were already available to address the current market environment. These actions did not go into effect until 80 weeks after the GFC of 2008-09 began.
This time around, Congress activated relief efforts only 11 weeks after the first reported coronavirus death in China. Just four weeks after that, legislation was signed to provide an additional $310 billion in funding for the Paycheck Protection Program (PPP), $60 billion of which is reserved for community banks and small lenders; $75 billion for hospitals; $25 billion to support testing efforts; and $60 billion for emergency disaster loans and grants.
One of the key characteristics of a good investor is resisting panic and euphoria. The unprecedented volatility and speed of the market’s changes may temp some to make emotional decisions about their financial plan, but it’s important to remember that market drawdowns of this magnitude are not uncommon. The economy and markets want to grow and these episodes are periodically part of that experience.
THE CARES ACT
The most recent bill, the CARES Act, is a $2.2 trillion emergency aid package providing significant tax and non-tax stimuli to individuals, their businesses and employer plans. Whether you’re an individual, a business owner or a retirement plan sponsor, follow the links below to learn more about what’s in it for you:
Last updated April 27, 2020
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