Click the 2 minute video below to view comments on President Trump’s diagnosis and the financial markets.
The surreal twists of 2020 continued with Friday’s news that President Trump has tested positive for the coronavirus. Markets initially reacted negatively; however, by the end of trading on Friday the S&P 500 Index and the Dow Jones Industrial Average had recovered sizeable portions of their opening losses. Reversing from last week’s results, U.S. stocks closed higher this week. Employment numbers again took center stage, as weekly and monthly reports produced mixed results. While jobs were still added last month and the unemployment rate again fell, a slowing pace of job growth and persistently high unemployment claims signal we have a long and challenging road to reach full recovery in the labor market. Agreement on additional coronavirus fiscal relief appears to have eluded Congressional Democrats and the Trump Administration; however, a stopgap spending bill was passed and signed which will prevent a government shutdown through December 11.
For the week, the S&P 500 Index closed up 1.5% while the Dow Jones Industrial Average advanced 1.9%. Year to date, the S&P is up 3.6% while the Dow is down 3.0%. Employment news headlined this week’s economic data. Weekly first-time unemployment claims fell to 837,000, lower than the consensus expectation of 850,000; continuing claims fell more than expected to 11.8 million. Monthly jobs data for September also was released, revealing a mixed picture. While the monthly number of jobs added was the lowest since the recovery began, the unemployment rate fell to a lower than expected 7.9%. One significant concern is the rising number of job losses that are now considered permanent – currently more than 3.5 million. Our expectation is that employment figures will continue to remain unpredictable until a coronavirus vaccine allows for full reopening of the economy and/or another round of fiscal relief is passed.
U.S. businesses have taken advantage of current ultra-low interest rates to push non-defense capital goods orders to their highest levels in eight years. These orders are for large-scale plant and equipment purchases that typically have long lifespans. Many industrial and manufacturing companies have learned to continue producing goods in a socially-distanced manner and seem to have stabilized to a greater extent than service-related businesses. The fact that companies are willing to plan and execute expansions and update equipment at this time is a positive sign for future growth.
Internationally, China reported that industrial profits grew for the fourth consecutive month as they continue to recover from the effects of the pandemic. The Tokyo Stock Exchange was forced to shut down on Thursday after a technical glitch stopped information flow and trading ground to a halt, before reopening on Friday. The end-of-year Brexit deadline still looms, as the contentious negotiations between the United Kingdom and the European Union regarding trade, customs, and border considerations shows little sign of resolution.
In the past, U.S. markets have faced election uncertainty, Presidential illness, and all manner of unforeseen shocks – and weathered their effects over the decades. We continue to maintain perspective and focus on the long-term outlook for markets. In our opinion, stocks are still positioned for relative outperformance over other asset classes in the next few years, mainly due to overwhelming government relief and accommodative worldwide monetary policy. However, while stocks still are the growth engine in our portfolio design, diversification into other asset classes is a vital principle we employ to reduce overall portfolio risk and provide ballast in unsettled times.
As we continue to navigate through the pandemic, our commitment remains to be here for you each step of the way. As always, please contact us with any questions about the economy and your financial plan.
Nathan Mersereau will continue posting short videos to provide timely insights and advice. We will post links to Nathan’s video updates across all of our social media channels.