Market Viewpoints – Fall 2020

By Keith Bonjour, Vice President, Portfolio Manager

Keith Bonjour, Portfolio Manager

The stock market continued to show gains through the summer months, but has stalled a bit for the month of September. This is not an unusual event with the upcoming U.S. elections weighing on the minds of investors, and September has a reputation for being one of the worst months of the year for stock performance historically. The Federal Reserve has signaled they will remain accommodative for the foreseeable future, which will continue to hold down interest rates and weigh on the yields for cash and fixed income investments. The U.S. unemployment rate has continued to come down from peak levels in the early stages of the lockdown, but still remains at elevated levels. We think this will continue to take time to heal the labor market especially in the hardest hit sectors such as travel, leisure, and restaurants, which have a tough road ahead of them to return to pre-pandemic levels. 

After Congress passed a large stimulus measure earlier this year called the CARES Act, expectations were high that they would pass another piece of legislation to continue to support the economic recovery. So far, the House and Congress have been at an impasse for how large the bill should be. Democrats are favoring a much larger scaled up version where Republicans favor a much smaller more targeted approach. We will have to continue to wait and see if they are able to compromise before the upcoming elections, but time is quickly running out. Consensus is that the U.S economy could use additional stimulus measures in order to help sustain the recovery that is currently in place. Worries are that if additional stimulus measures are not implemented, this could weigh on an already fragile recovery. 

The market is turning its attention to the upcoming elections, which tend to add more volatility to the stock market, and we think this election cycle will be no different. We do recommend continuing to stay the course with your long-term investment objective since elections tend to have a short-term impact on the stock market historically. There should be more news regarding several high profile COVID-19 vaccine trials before the end of the year. The markets will be looking to see if one or multiple vaccines are able to show strong safety and efficiency in preventing the transmission of coronavirus as they complete their Phase 3 trials. Hopes are that we could see one or multiple vaccines approved by the end of 2020, but consensus points to first quarter of 2021 being more likely. If we do see one or more vaccines approved, the next step will be to see how quickly manufacturing capabilities can be ramped up to provide vaccines to all those individuals who want to be vaccinated. The CDC has estimated that this timeframe will probably be around the 3rd quarter of 2021. We continue to view this as an important piece of the puzzle to get the economy back on track and allow the economic recovery to sustain itself. 

While we have seen a nice recovery in the market after the COVID-19 induced sell-off, it is important to look forward and be mindful of the risks that the markets face. We continue to recommend staying the course with your investment objective and to continue to rebalance your portfolio by selling strengths and buying into weaknesses to adjust to movements in the market over time. We also recommend determining any short-term cash needs that will be needed over the next six to twelve months and to set this cash aside to protect against short term moves in the market. We recommend maintaining a more longterm focus on investment goals and objectives, and not reacting to short term up or down movements in the market.

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