COVID-19, Elections, Recessions and Recovery
Difficult past, hopeful future
For the Sturm family, back to school looked different this year than last. Normally, it marks the end of summer, Labor Day BBQ’s, and Zachary and Sarah returning to their schools. But this year, going back to school carried unique concerns because of COVID-19. Not only were Tracy and I responsible for running our respective businesses, but we were also thrust into new roles as our kids’ teachers and IT technicians for their online schooling.
Of course, our story isn’t unique to us.
The good news is we are seeing positive COVID-19 developments that may be getting us closer to the end of the pandemic.
While the COVID-19 fight is not over, more progress has been made recently. New cases and hospitalizations in the United States have been falling steadily since mid-July. Several promising vaccine candidates have entered phase-three trials in the United States, and the FDA could potentially fast-track approval for emergency use later this year. Abbott Laboratories has developed a $5 COVID-19 test that the company claims can produce reliable results in only 15 minutes.
The stock market has responded to these promising developments with fresh record highs for the S&P 500 Index and its strongest August performance since 1984. Stocks have also received a boost from surprisingly strong recent economic data, which already may have brought an end to the “lockdown recession.”
The brightening economic picture helped second quarter corporate earnings beat estimates by an average of 23%, more than in any quarter since FactSet began tracking earnings statistics in 2008. Estimates have risen to the point where analysts expect 2021 S&P 500 earnings to surpass the 2019 level.
But even if the recession may be over technically, the path forward may be challenging. In my August 16, 2020 post, I cautioned my clients that headwinds following a strong run-up were likely. And, as predicted, September is proving to be a challenging month. Looming are concerns with companies like MGM, American Airlines, Coca-Cola, and other major corporations who recently announced thousands of layoffs. Lawmakers are stalled in their negotiations for another stimulus package, but I am confident that they will hammer out some agreement.
Now that the Democratic and Republican national conventions are behind us, election season is in full swing—and with that comes the potential for continued market volatility. But please keep in mind: this is normal. During election years, October can be uniquely volatile as political anxieties peak.
At the same time, it’s possible we’re in the beginning stages of a new bull market, which suggests additional gains for stocks may be forthcoming. That’s why it probably makes sense for suitable investors to be patient, stick with their target allocations, and resist the urge to get more defensive.
I hope that you and your family remain safe and healthy. As always, please call or email me if you have any questions.
Managing Partner / Account Executive