A Laborforce Exodus, Stimulus Uncertainty Weighs on the Markets, and Markets During Election Seasons
The manufacturing recovery may have slowed in September, but we’re still seeing some good numbers from the Kansas City Fed and other regional indices. Covid-induced changes to the workforce remain a major concern as laborforce outflows, hour reductions, and stimulus uncertainty weigh on consumer confidence, which has ticked down amid an apparent third wave of infection. The markets are also feeling the effect of prolonged stimulus negotiations, as well as growing political uncertainty as the election approaches. How have markets historically reacted during election season?
The top question we are being asked from advisors right now: “is there data that can help me anticipate stock market returns in an election year?” While we have outlined some key data worth examining, our takeaway is we would caution against making any significant investment decisions based on these trends.
BCM Portfolio Manager Brendan Ryan, CFA® joined Jeremy Schwartz and Jeremy Siegel of Wharton Business Radio's Behind the Markets podcast to discuss why traditional asset allocation methods are no longer sufficient, emerging short- and long-term market trends, and how to use machine learning to pursue prudent risk taking in an era where it's becoming more necessary than ever.
Latest on Unemployment
Jobs are still coming back, but at a slower pace. Approximately half of the jobs lost since the onset of the pandemic have been recovered, and—while not exactly forming a full V (we see more of a checkmark)—are returning at a significantly faster pace than in past periods of significant losses. State and local governments have seen massive losses to tax revenue in 2020 in a development that could spell trouble for muni-bond investors. And while 10-year UST yields may look strong from a certain angle, the trend likely isn’t sustainable. Do you have an alternative in place?
Personal spending climbed 1.0% in August, though spending on services is still lagging. The trade deficit has widened in 2020, bucking the typical pattern from past recessions as the U.S. suffers a 10.1% decline in real GDP. U.S. equities have outperformed the global market since 2012 with large-caps leading the charge, but fixed income yields are continuing to disappoint. Is it time for corporate DB plans to consider GTAA as an alternative?
The State of Small Business, Employment Recovery Lags Previous Recessions, and a Look at Earnings Guidance
Economic reopenings are rolling on—NYC welcomes back indoor dining today—but small businesses are still struggling. 43% of those surveyed reported seeing revenue more than halved since the onset of the pandemic, and it’s being reflected in their employment numbers… which are very reminiscent of 2009. But how does the broader employment recovery stack up against previous recessions? Meanwhile, S&P 500 Index companies look to be feeling optimistic on the earnings front as we close out Q3, and October and November have historically been strong months for the index. With political tensions ratcheting ever-higher ahead of the election, will the trend continue?