September 2020
Market Update

“What does matter, and matters a great deal, is what the Federal Reserve is doing.” 

2020 has been a year for records. As of the end of August, Phoenix had set a record for number of days over 110 degrees with 50, shattering the previous record of 33. Over 1.5 million acres of California have burned so far this year, in comparison to 56,000 acres through this same period a year ago. We saw the fastest race into bear market territory earlier this year with a 34% decline in the markets in 3 weeks. Then we reversed that with one of the fastest recoveries from said bear market in April and May. Then there is the whole virus thing. I don’t know about anyone else, but boring sounds really appealing to me right now! 

With elections looming and the global economy still working through what it means to deal with a pandemic, unfortunately “boring” doesn’t seem to be in the cards this year. It is two months to election day and I would have to say that more than half of the conversations we are having with you these days revolves around what markets will do depending on who is elected. While it certainly matters who is in the White House when it comes to legislation on taxes, judge appointments, etc. it may surprise you to know that the markets are fairly agnostic (see our Chart of the month for reference). What does matter, and matters a great deal, is what the Federal Reserve doing. 

Since the start of the crisis, the Federal Reserve has added over $3.5 Trillion to their balance sheet. To put it simply, that’s printing money. Coming out of the 2008 financial crisis, it took the Federal Reserve five years to add that much to their balance sheet. It took them six weeks to do the same thing this spring. This week, Chairman of the Federal Reserve Jerome Powell, added another element to their plan to right the economic ship: they have changed the target of 2% inflation to a target of 2% average inflation. What is the difference and why the distinction? 

What it signals to the markets is that they will not begin to raise interest rates, as they did during the past decade, when we start to see inflation; they will wait until the average inflation is in that range. This means they will wait longer and let inflation run “hot” for a period of time before beginning to slow the printing presses. And generally speaking – that is virtuous for stocks. 

Whether they are successful in this approach remains to be seen but we will certainly be watching closely and I am sure, commenting on this in future commentaries. 

In the meantime, we closed out August with a 7% gain in the S&P for the month, the third best August in the stock market’s history. There we go with those records again! And September has kicked off with some profit-taking as markets sold off the most we have seen since June. In fact, in your portfolios here, one of our key risk metrics pulled us into cash in part of the stock portfolios. Bonds continue to be fully invested for the moment, and we did part with Tesla in the Momentum and Alpha strategies as the gains were too big to give away! So closing out the month with big gains in the market and starting the next with big losses. We expect that this is exactly the kind of market swings we will see through to the election as the Federal Reserve provides the fuel to push stocks higher while at the same time fear of the unknown stokes volatility and sell-offs much like we are seeing right now. 

As always, we remain vigilant in how we navigate these markets for your portfolios and appreciate the faith and confidence you have placed in us. Thank you to everyone who joined us for our inaugural Zoom-inar! If you missed it, please follow the link here for a recording of the presentation and we plan more of these before year-end. LINK HERE. 

A note to all our near-retirees, that we will still be hosting our Medicare Lunch-n-Learn in October, and it will be entirely online as well! That date is October 6th with details to follow in just a few weeks. 

If you have questions, please contact us.

FINANCIAL PLANNING
COLLEGE AND TAX PLANNING
401(k) ALLOCATION
GRAPHIC OF THE MONTH

To download the September 2020 Newsletter: CLICK HERE