Happy Autumn, we hope you that have been able to settle into a pandemic routine that keeps you safe but not completely isolated from the people and activities you love. Most of us at Boulay continue to work from home and even those team members who once owned eight-track tape players have grown used to the new technology that keeps us all connected.
While the official numbers are not in yet, it is estimated by that the economy reinflated by 30-35% in the 3rd quarter. Approximately 3.8 million folks returned to work. Amazing figures, but the economy remains down approximately 10% from February. Of the 22 million jobs lost in the spring, it is estimated that over 10.7 million have not returned. Much of those losses are concentrated in the entertainment, travel, and hospitality sectors. While the housing market has been a bright spot in the economy, many economists caution that most of the easy growth has now been captured, and they expect the overall recovery to slow until a vaccine is available. (Sources: Goldman Sachs, Dept. of Labor, JP Morgan)
The stock market had a strong performance last quarter reaching new highs but experienced a bit of a pullback in September. Still, the U.S. large company index, the S&P 500, finished the 3rd quarter up 8.9% and is up 5.6% for the year. The composite index for the NASDAQ exchange was up 11.2% for the quarter and is up over 25% for the year due to it's concentration in technology companies. Internationally, developed country large cap stocks also had a good quarter as the MSCI EAFE index moved up 4.8%. For the year, that index remains down 7.2%.
As we look towards an eventual emergence from the pandemic, broad diversification looks to be the winning strategy. The U.S. stock market has been carried upward since March by the technology, healthcare, and consumer cyclical sectors. The market pullback in September appears to be an indication that those sectors are running out of steam. The pandemic has hit small caps hard as well as large companies in the real estate, financial services, and energy sectors, among others. It is those parts of your portfolio which have struggled, that will have the most potential to perform well as we begin to leave the pandemic behind.
Another reason for the stock market rally is that bond yields remain near historic lows and some investors have opted to swap bonds for stocks. Nonetheless, the U.S. bond markets managed a positive return for the quarter. Investor flight to safety is a factor for low yields but the biggest factor has been the Federal Reserve’s bond purchases. The Great Recession taught the Fed to not let liquidity issues grow into a widespread solvency crisis. To counter bond market liquidity issues experienced in March, the Fed has added over $2 trillion to its balance sheet in 2020 with its purchases of U.S. Treasury, municipal and corporate bonds. The Fed’s actions are keeping the bond markets stable but also helping to keep yields low. (Source: The Federal Reserve Board)
The Fed does not expect to raise interest rates anytime soon. In fact, the Fed has changed its multi-decade approach to fighting inflation from raising rates as inflation exceeds it target rate to accepting a range of inflation rates over a business cycle that average to their target. Will we see 5% inflation anytime soon? It is highly doubtful, but it is good to know what the Fed is thinking if inflation does pick up.
The twists and turns of the 2020 election continue unabated. With so many Americans choosing to vote by mail, it is possible that a definitive result may not be known until well after the election. Expect the markets to be frothy during this period and susceptible to overreaction to every little development.
As we find ourselves spending more time indoors in the coming months, it is important to find ways to stay healthy and involved. Now is the time to start lining up some projects and activities. The Internet offers loads of educational and exercise programs. If you have been dreaming of travel these past few months, it is time to start learning a bit of the history and language of your eventual destination. Stay in touch with loved ones. There has never been a more suitable year for sending out holiday cards. Get those files organized. Digitize all those old photos. Start on that personal and family history that you intend to pass on to the next generation.
Please stay healthy and safe and continue to assist your local small businesses and charities to get through these tough times.
Investment Advisory Services offered through Boulay Financial Advisors, LLC a SEC Registered Investment Advisor. Certain Third Party Money Management offered through Valmark Advisers, Inc. a SEC Registered Investment Advisor. Securities offered through Valmark Securities, Inc. Member FINRA, SIPC 130 Springside Drive, Suite 300 Akron Ohio 44333-2431* 1-800-765-5201
Boulay PLLP and Boulay Financial Advisors, LLC are separate entities from Valmark Securities, Inc. and Valmark Advisers, Inc. Prime Global is not affiliated with Valmark Securities, Inc. and Valmark Advisers, Inc.
Indices are unmanaged and do not incur fees, one cannot directly invest in an index. Past performance does not guarantee future results.
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