The recovery in the financial markets hit some turbulence in October, as investors wrestled with anxiety about increasing COVID cases. However, a surge in gross domestic product (GDP) in the third quarter may signal that the economy is on the rebound.1
Through October 28, all major indexes had mostly recouped most of their losses from the COVID crash in March. However, all were down for the month of October. Below is each index’s return from October 1 through October 28:
S&P 500: -2.73%2
Here are the year-to-date returns of the major indexes:
S&P 500: 0.40%2
What spooked the markets in October? There are a few factors, but as is the case with most things in 2020, COVID may be the primary factor.
COVID Cases Ramp Up
The COVID numbers are surging in the United States, suggesting that the end of the pandemic may be nowhere in sight. On Wednesday, October 28, the seven-day average for new daily cases hit an all-time high of 71,832, an increase of more than 20% in only a week.5
Twenty-nine states hit record levels for daily new cases in October. Forty states had an increase of 10% just in the last week of October.6 Thirty-six states had increases of at least 5% in COVID-related hospitalizations in the final week of October.5
The surge in cases is leading to a new round of business closures and regulations. Illinois recently stopped indoor dining at bars and restaurants.7 Investors may be spooked by the prospect of a second round of closures and its impact on the economy. A new report from Yelp found that 60% of businesses that were shutdown for COVID will never reopen.8
The uncertainty of a second stimulus may also be a drag on the markets. In fact, Gary Cohn, former president and CEO of Goldman Sachs and former White House National Economic Council Director, says it is a primary factor driving the markets’ poor performance in October.9
He added in a recent interview that, “no one thinks we’re going to have stimulus until after the election,” and that, “we know that the markets do not like unpredictability.” He said that there was “100% probability” that stimulus won’t happen until after November 3rd, and possibly not until after the inauguration.9
Some recent data on mutual fund flows may provide insight into how investors feel about the financial markets. Through October 21, equity funds (including mutual funds and ETFs) saw net outflows for 11 consecutive weeks. That means more money flowed out of these funds than flowed into them.10
On the other side, taxable fixed-income ETFs have seen four straight weeks of net inflows. That may mean that investors are leaving equities for fixed income securities, even with interest rates near zero.10
GDP Surges in 3rd Quarter
On a positive note, GDP surged by 33.1% in the third quarter, beating analyst expectations of 32%. The third quarter number is the largest quarterly GDP gain on record, easily beating the previous high of 16.7% in the third quarter of 1950.11
Of course, the third quarter surge comes after a 31.4% decline in GDP in the second quarter. Even with the increase in the third quarter, the economy is still projected to contract by 3.5% in 2020.11
The markets and the economy have rebounded, but the future is still uncertain. This may be a good time to explore options that can protect your assets from market volatility. Contact us today at Senior Retirement Advisors. We can help you explore these options and implement a strategy to protect your financial future. Let’s connect today and start the conversation.
Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency. 20420 - 2020/9/18
On Wednesday, September 16, Federal Reserve Chairman Jerome Powell offered his assessment of the economic recovery. The press conference offered some positive news, but also a sobering prediction that a full economic recovery will take years.1
The good news is that the Fed has cut its 2020 median unemployment rate projection to 7.6%, down from a 9.3% forecast in June. The Fed also adjusted its projected 2020 GDP reduction to 3.7%, down from a 6.5% decline that was projected in June. GDP, which stands for gross domestic product, is a broad measure of economic growth. A decline in GDP means the economy is contracting rather than expanding.1
Powell also said that the Fed had shifted its focus to employment growth rather than inflation control. That means the Fed expects to keep interest rates at or near zero until the economy is near maximum employment and inflation is projected to exceed 2%. He added that it will likely take years before the economy has reached those thresholds.1
While low interest rates may be good for borrowers and investors, Powell’s comments indicate that the Fed believes the economy is years away from a full recovery. He indicated that unemployment is still four times higher than the pre-pandemic level.1
“That just tells you that the labor market has improved, but it’s a long way from maximum employment,” Powell said.1
Stock Market Returns
The investment markets continue their recovery from the downturn that hit in March of this year. Through September 16, the indexes have the following year-to-date returns:
S&P 500: 3.39%2
While the markets have mostly recovered from their losses earlier in the year, volatility can strike at any time. That’s especially true should the COVID pandemic worsen or if the economy suffers continued damage. There also may be increasing uncertainty as the election approaches.
If you're concerned about risk, let’s talk about it. There are a wide range of strategies and tools we can implement to minimize risk and protect your retirement income . Let’s connect today and discuss your needs, goals and concerns. Senior Retirement Advisors, we welcome the opportunity to help you implement a strategy based on your objectives.
Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency. 20415 - 2020/9/17
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