Market Commentary 9/30/2020

By: Matt Garrott

The S&P 500 gained 8.9% during the third quarter, putting its year-to-date return at 5.1%, while other broad stock indices gained between 4% and 9% for the quarter but remain in negative territory through the first nine months of 2020. A moderate asset allocation is likely up between 2 and 4% for the year. 

The third quarter saw a sharp rebound in US economic data.  US GDP made headlines after dropping 31.4% in the second quarter.  JP Morgan expects GDP to rise 35% in the 3rd quarter.  This doesn’t get the economy back to its pre-pandemic size (that would take a 53.3% jump in Q3 GDP).  It does indicate that the sharp pain of the pandemic may be relatively short-lived.  Similarly, of the 22.2 million jobs that were lost over the course of 2 months, 11.4 million have been regained.  The unemployment rate dropped from 14.7% in April to 7.9% today.  Some are calling this a ‘K’ shaped recovery as sectors like technology have recovered well, but leisure, hospitality, and retail continue to struggle.

Testing for the pandemic increased from about 600,000 tests per day at the end of June to about 1 million tests per day now.  Hospitalizations stood at about 35,000 at the end of the second quarter, peaked at 59,000 in July, and have since dropped to 31,000.  There are 11 vaccines in Phase III trials.

America will hold a Presidential election before our next commentary is published.  JP Morgan’s Dr. David Kelly says the best case scenario is a decisive election result.  A clear winner will remove a large source of uncertainty.  We don’t normally make election predictions, but a safe bet is that more ballots will not be cast at all than will go to the winner.  Theodore Roosevelt was the last US President to earn the majority of eligible voters’ ballots, over 100 years ago.  We encourage you to express your political opinion in the polling booth, not your portfolio.  The portfolio is constructed to outlast politicians, not in reaction to them.            

To fight the election noise, be mindful that social media posts that make people mad drive the most interaction.  It should not surprise us that social media’s algorithms show us less of what we might like and more of what will drive us up the wall.  They want to push your buttons so you will push their (like, upvote, downvote, favorite, etc) buttons back.  The more user engagement, the more advertising dollars they can generate.  “It’s an attention economy, and businesses want you engaged. How do they get engagement? Well, they give you little dopamine hits, and … get you riled up.” says MIT professor Sinan Aral, “We know strong emotions get us engaged, so [that favors] anger and salacious content.”