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U.S. stocks finished lower again this week. Over the past three weeks, both the S&P 500 Index and Dow Jones Industrial Average have pulled back nearly 10% from their recent highs. Ongoing coronavirus-related concerns, uncertainty about November’s election, and investors realizing stock gains from the past six months’ run-up all seem to be contributing to the recent decline. The housing market continued an impressive stretch as sales figures for existing homes rose to their highest since December 2006.
For the week, the S&P 500 Index closed down 0.6% while the Dow Jones Industrial Average fell 1.8%. Year to date, the S&P is up 2.1% while the Dow is down 4.8%. The choppiness of reported unemployment data continued this week. First-time unemployment claims rose slightly to 870,000, above consensus expectations, while continuing claims fell marginally to 12.6 million. Housing market data stayed on a tear; existing home sales in August grew 10.5% from the same period last year, as very low inventory propelled the median existing home sales price to a new record.
Public health and policy responses to the coronavirus continued to weigh on markets. Higher case numbers (especially in Europe) are causing concern, even though mortality rates for those contracting the virus have fallen due to more effective treatment protocols. Economic activity appears to be more uneven in recent weeks; although a recovery is underway, the pace seems to have slowed. Both Federal Reserve Chairman Jerome Powell and Treasury Secretary Steven Mnuchin testified before Congress this week that they believe additional fiscal relief is necessary for continued support of the recovery. Prospects for an additional coronavirus bill remain bleak, as the divide between House and Senate leaders on the amount necessary remains expansive. There was a notable legislative bright spot this week, as the House passed a temporary spending bill that would avoid a government shutdown through December 11. The bill now goes to the Senate for approval.
With less than six weeks until Election Day, questions regarding which candidate will win the presidency, which party will control the Senate, and whether or not results will be available in a timely fashion all cloud the market outlook. Conventional wisdom is that presidential election years are more volatile than others. However, a recent piece from our partner Vanguard examined the S&P 500 Index from 1964 – 2019 and reported results countering that belief. First, Vanguard found that volatility in the periods before and after presidential elections actually exhibited lower volatility than values observed in the entire 55-year sample size. Second, they found no meaningful difference in the volatility immediately preceding an election and immediately afterwards. While we can never know in advance if past trends will repeat this year, using this information to inform any potential election-year investment decisions is worthwhile.
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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.