October 2020 Market Insights

By: Linda S. Parenti, CFA – Chief Investment Strategist

October’s positive uptrend in the stock market has been a welcome respite. As of yesterday’s close, October’s month-to-date performance of the S&P 500 has basically made up for September’s decline. On a total return basis, the index is up 9.4% year-to-date and has gained 18.5% over the past 12 months. That is impressive performance considering we continue to live under COVID-19 rule in a partially opened economy, and it is only 18 days from a contentious election between two radically different candidates.

Even though economic activity remains incomplete, one reason the equity market continues to move higher has been the encouraging succession of improving monthly economic readings since April. ;In turn, company earnings guidance has become more positive, which has boosted their stock prices. Markets appear to be looking beyond the trial delays to the eventual approval of one or more vaccines and/or treatments for COVID-19. These will be key to determining when the economy can reopen more fully. In the meantime, there also remains hope that additional fiscal relief may still be approved before year end or early 2021.

As we get closer to the November 3rd election and in the days that follow, it is reasonable to expect market volatility will rise as the votes get tallied and reported. There are 14 states which allow mail-in ballots to be postmarked as late as election day and 11 states which do not allow ballots to even be opened until election day. So, there most certainly will be a waiting period of days or possibly weeks before we know all the results. In addition, early counts from exit polls could be skewed if one party ends up with more in-person registered voters versus those voting with absentee ballots. We would caution investors not to make large asset allocation shifts or bets on outcomes prior to elections or during the days before the final winners are announced. There will likely be hasty price reactions among companies or industries based on political platforms that may not come to fruition once the elected are in office.

Then how do you protect your portfolio from a known unknown? Just as there are coronavirus winners and losers, there will be election winners and losers. Therefore, a well-diversified portfolio with exposure in many sectors and disciplined position sizes is always the best start. Furthermore, tactically shifting assets within allocations and including holdings that do not necessarily always move in the same direction may provide a further offset to the market volatility expected following elections. These steps along with thoughtful preparation for a variety of outcomes is essential.

To learn more, be sure to sign up for our upcoming webinar on how the elections and ongoing pandemic are likely to impact current realities and future decisions. Feel free to invite friends, family, and colleagues. The date/time is Wednesday, Oct. 28, at 11:30 am. You can register here for The Year 2020 and the Impact of the Upcoming Election on Your Finances and Taxes or go to the Events tab on our website.

Linda S. Parenti, CFA
Chief Investment Strategist

RISKS AND IMPORTANT CONSIDERATIONS

Views and opinions expressed here are for informational and educational purposes only and may change at any time based on market or other conditions or may not come to pass. This material is not a solicitation to buy or sell securities and should not be considered specific legal, investment, or tax advice. The information provided does not consider the objectives, financial situation, or needs of any specific individual. All investments carry a degree of risk and there is no certainty that an investment will provide positive performance over any stated period. Equity investments are subject to company specific and market risks. Equities may decline in response to adverse company news, industry developments, or economic data. Fixed income securities are subject to market, credit, and interest rate risks. As interest rates rise, bond prices may fall. Past performance is no guarantee of future results.