Market Update – October 31, 2020

Click (less than 2 minute) video below for comments on markets, volatility and the upcoming election.

Happy Halloween! Investors received no treat from stock markets this week as the major indices were down significantly across the board. More restrictive government responses to rising coronavirus case numbers around the globe and the uncertainty surrounding how next week’s election will impact future economic prospects weighed on markets, overshadowing Thursday’s stellar third-quarter U.S. economic growth news.

For the week, the S&P 500 Index closed down 5.6% while the Dow Jones Industrial Average declined 6.5%. Year to date, the S&P is up 1.2% while the Dow is down 7.1%. First-time unemployment claims again fell more than expected, to 751,000, the lowest level since March. Continuing claims also beat expectations, falling to 7.8 million. Barring more extensive lockdowns in states with elevated COVID-19 case numbers, we expect the labor market to continue to heal in fits and starts into the summer of 2021, when a vaccine is hopefully available to the vast majority of Americans.

International stocks also finished down this week, as health news out of Europe adversely affected asset prices. Governments in the United Kingdom and Germany responded to higher coronavirus caseload levels with more stringent curfews and lockdowns. In turn, the concern that returning to greater restraints will damage prospects for future economic growth led a reversal from recent stock advances. Some reported progress between the European Union and the United Kingdom on a comprehensive Brexit deal was positive news; however, just how close the two sides are to an agreement remains unclear. The consensus view is that a compromise by mid-November is necessary for both sides to ratify the agreement by the end-of-year deadline.

As anticipated, the third-quarter U.S. economic growth number was remarkably positive. In fact, the 7.4% GDP increase in the third quarter (33.1% annualized rate) set a record, exceeding the consensus expectation of economists. Of course, this comes on the heels of a miserable second quarter – the worst quarter on record. Even though this immediate turnaround provides credence to the idea of a V-shaped recovery, questions remain about the direction and magnitude of GDP growth over the balance of 2020 and into 2021. While it is likely that we end calendar year 2020 with negative annual GDP growth, we expect continued economic healing and growth in 2021. However, the largest threat to that outlook – that further large scale U.S. lockdowns could cause higher unemployment, a sharp reduction in consumer spending, and put pressure on corporate earnings – remains a possibility.

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.

We are committed to providing timely and actionable communication to our clients. If you’re looking for more financial insights, check out our detailed quarterly investment commentary. You also might be interested in two other new articles on our blog that address practical matters. One post offers tips on leveraging health savings accounts to save for retirement, while another article covers the ins and outs of avoiding cyber scams. As always, please reach out with any questions. We are here for you!

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