Election Day came and went with a positive response from the stock market. Investors appear to like the prospect of a split Congress combined with a Biden presidency. We have been saying for months not to anticipate the market reaction to the election but instead to stay invested with comfort that your portfolio is ready for whatever is ahead. A glance at betting odds underlines this point.
Just prior to election results being released on Tuesday evening, the prevailing belief was that Biden would win the presidency. Betting odds at the time pegged the probability of his victory at 68%. As results began to come in, and it was likely the “blue wave” was not going to happen, the odds flipped. When I went to bed, Trump was the odds on favorite, with a probability of winning at 74%. By morning those odds had flipped again in Biden’s favor. While the desire to get out of the market during times of stress is natural, these betting odds show that such a move would be a gamble. Betting on politics is illegal in the U.S., and we would recommend applying that law to your investments as well.
Stocks are up over 4% since Election Day. Did we know stocks would react so positively? No. We do know that market timing is not investing and that any investor who sat on the sidelines for the election has missed out on positive portfolio performance that cannot be made up. 2020 has provided some wonderful lessons for investors. Whether it was the pandemic or the election, long-term investors have likely benefited from staying invested.
Headlines This Week
- Election Day elicited a positive response from the stock market.
- While the election has not been called at the time of this writing, the most likely scenario is a Biden presidency and a split Congress (a Republican-majority Senate and a Democratic majority House).
- The split Congress is unlikely to overturn corporate-friendly Trump policies (like tax reform), while Biden is a fairly known quantity.
- The US (and abroad) reached new COVID highs.
- On Thursday, 120,000 new cases were announced.
- For now, the market has been more focused on the election, but attention will return to these numbers as the need for economic restrictions increase.
- The U.S. Fed announced their decision to hold short-term borrowing rates near zero after the Federal Open Market Committee (FOMC) met this week.
- Fed officials noted that the economy continues to recover but remains well below pre-pandemic levels.
- Chairman Jerome Powell reassured investors that the Fed is committed to using all of the monetary tools at their disposal to support the economic recovery.
- Employment growth was better than expected in October, as manifested by the unemployment rate falling to 6.9%.
- Hardest hit sectors like hotels, bars, and restaurants saw the biggest increase in jobs. Retail and manufacturing continue to recover, while construction remains strong.
- Over 89% of companies held in the S&P 500 index have reported their third-quarter earnings.
- Thus far, S&P 500 earnings have declined by about 6.2% vs. the same period a year ago.
- The Energy and Industrials industries were the main contributors to earnings decline, while Healthcare was the major positive contributor to earnings growth.
The Week Ahead
The headlines will be held hostage by ballot-counting and court challenges.
- Markets will continue to react to updated ballot counts.
- With key battleground state’s results very close, expect recounts to begin in several States.
Across the Pond
Preliminary 3rd quarter Gross Domestic Product (GDP) for both the Eurozone and the United Kingdom will be released next week.
- Eurozone 3rd quarter GDP is expected to have declined by 4.3% year-over-year. Quarter-over-quarter isn’t expected to have a U.S.-like 33% pop, but a more measured 12.7% increase.
- The U.K. numbers are also expected to jump 15.8% quarter-over-quarter, but still down 9.4% year-over-year.
Looking for Inflation
Data on inflation, consumer confidence, and jobs will be released.
- After a strong jobs report for October, the weekly results will have to confirm the trend.
- The Consumer Price Index is expected to read a 1.3% inflation rate, far short of the 2%+ target the Federal Reserve would like to reach.
- The Producer Price Index is expected to be even lower with a sub 1% year-over-year reading.
Founded in 1979, Strategic is a leading investment and wealth management firm managing and advising on client assets of over $1.8 billion.Overview
Strategic Financial Services, Inc. is a SEC-registered investment advisor. The term “registered” does not imply a certain level of skill or training. “Registered” means the company has filed the necessary documentation to maintain registration as an investment advisor with the Securities and Exchange Commission.
The information contained on this site is for informational purposes and should not be considered investment advice or a recommendation of any particular security, strategy or investment product. Every client situation is different. Strategic manages customized portfolios that seek to properly reflect the particular risk and return objectives of each individual client. The discussion of any investments is for illustrative purposes only and there is no assurance that the adviser will make any investments with the same or similar characteristics as any investments presented. The investments identified and described do not represent all of the investments purchased or sold for client accounts. Any representative investments discussed were selected based on a number of factors including recent company news or earnings release. The reader should not assume that an investment identified was or will be profitable. All investments contain risk and may lose value. There is no assurance that any investments identified will remain in client accounts at the time you receive this document.
Some of the material presented is based upon forward-looking statements, information and opinions, including descriptions of anticipated market changes and expectations of future activity. Strategic Financial Services believes that such statements, information, and opinions are based upon reasonable estimates and assumptions. However, forward-looking statements, information and opinions are inherently uncertain and actual events or results may differ materially from those reflected in the forward-looking statements. Therefore, undue reliance should not be placed on such forward-looking statements, information and opinions.
No content on this website is intended to provide tax or legal advice. You are advised to seek advice on these matters from separately retained professionals.
All index returns, unless otherwise noted, are presented as price returns and have been obtained from Bloomberg. Indices are unmanaged and cannot be purchased directly by investors.