At this point in the year we’re normally making the final preparations for our annual Holiday Party, but like so many other events throughout the pandemic we’ll have to look forward to hopefully resuming that tradition next year.  We’ll miss seeing you in person, but hope that each of you, and your families have a safe, healthy, and enjoyable holiday season.

A recent bright spot is the stock market’s strong performance during November as the S&P 500 rallied about 10.75% hitting new all-time highs along the way. (YCharts) This rally has come in a month where we’ve had no shortage of headline news. 

We are resetting our yield curve indicator back to green as 3rd quarter GDP growth signals that we are likely out of recession and entering the economic recovery phase of the business cycle (even though National Bureau of Economic Research, NBER, has not officially announced the end date of the recession).  The yield curve signal is used as a warning sign of recession and flashes red when the 10YR-3mth spread is below zero (longer-term rates drop below short-term rates). Currently the yield spread is at .80%, as of Nov. 3rd (YCHARTS). 

Another month is in the books as stocks moved down in October with the S&P 500 dropping about 2.8% (YCharts).  Unless you’ve been living under a rock, avoiding phone calls, and ignoring your mail you know that election day is here.  Much has been written about the various potential outcomes, and what each result might mean for the economy and stocks.

In short, we don’t think that any outcome should cause investors to hit the “sell” button.  Historically, the US stock market has performed well under both parties and many non-political factors influence the economy and stock market.  Potential policy changes could impact specific areas of the economy and may warrant adjustments in portfolios. We have worked with each of you to design an allocation and portfolio that seeks to maximize your chances of reaching your goals and we don’t believe this election is a reason to abandon that plan.

We are upgrading our Market Breadth indicator back to green as market breadth has improved since our last downgrade in September.

September has historically been the worst month of the year for stocks (LPL Financial), and this year was no different as the S&P 500 closed the month down almost 4%. (YCharts) Despite recent weakness the stock market has shown amazing resilience as the S&P 500 is about 4% higher year-to-date, rallying 50% from the lows in March. (YCharts)

COVID-19 has undoubtedly been the biggest factor impacting the economy and stock market this year, and will likely continue to be the most important item to watch as we enter the fourth quarter and move into 2021. Amidst the backdrop of a global pandemic the economy has steadily improved over the last few months.  The improvement in economic data, combined with the latest market pull-back, has led us to increase our stock market exposure. 

We recently downgraded our Market Breadth indicator to Yellow. While the S&P 500 reached all-time highs in recent weeks, there has been less participation from stocks in the most recent move higher, signaling near-term caution.

With the presidential election less than 3 months away, we know the election is on your mind; it’s on ours too. Here, we will share with you our thoughts on the election’s potential impact on the economy and the stock market. 

We upgraded our Business Confidence Indicator to green. 

Stocks continued their move higher last month as the S&P 500 rallied over 5% in July. (YCharts) This brings the S&P 500 to breakeven for the year, something that many investors would have had a hard time imagining during the market lows in March.  While the rally in stocks is much welcomed there is concern that the market’s recovery does not accurately reflect the damage done in the economy.  We agree.  While the market is generally considered a leading indicator, we don’t believe the dramatic move higher is an “all-clear” signal for stocks (or the economy).

We recently updated our economic dashboard by upgrading our Market Technicals indicator to green. The sustained move higher in stocks since the lows in March has shifted the underlying trend back to positive leading to this change.