And we’re in the final stretch…of an eventful 2020 that is. More excitement and volatility are all but certain, as the election and progress of COVID-19 are closely watched. For now, let’s review some of the various index returns from the past couple of months:

Index	3rd Quarter	1 YR
S&P 500 Large Cap Index	8.47%	12.98%
S&P Small Cap 600 Index	2.81%	-9.76%
S&P Developed BMI International Index	7.50%	7.74%
S&P U.S. Aggregate Bond Index (total return)	.67%	6.71%
S&P Municipal Bond Index (total return)	1.18%	3.85%
Dow Jones Equity All REIT Index	.40%	-15.07%
Dow Jones Commodity Index (total return)	8.25%	-10.48%

Source: Dow Jones, data as/of 9-30-2020 (doesn't include dividends unless noted). Here is comprehensive list of returns.

Regarding the equity markets, this was another solid quarter. Specifically for the S&P 500, July was a strong month, and August was even better. September gave some of that back and was the first down month since March’s big dip. Technology stocks (finally) pulled back in September, and we actually see “value stocks” outperform “growth stocks” for the first month this year.

After 3 negative months to start the year the S&P 500 has been up 5 of the last 6 months. If you are keeping score at home, that makes 5 positive months and 4 negative months. All things considered, I think we’ll take it.

I’ve recently written about the “S&P 5”, which some people refer to as the FAANG stocks. They’ve been supporting the US indexes to a great extent. If you look at the entire 500 stock index, the level is up approximately 4% year-to-date (January 1 was 3226 and on September 30 was 3363). What is notable is that most stocks (roughly 2 out of 3) are not only lower than that level, but they are negative year-to-date.

OK so the S&P 500 is higher for the year thus far. What about the rest of the various indexes? We are definitely seeing some dispersion. In addition to large caps, the “growth” companies, gold, and bonds are up nicely. Lagging are most commodities, real estate, value companies, and small-cap stocks.  Chances are you own some blend of all of these in a diversified portfolio.

Many news outlets make the Dow Jones 30 (DJIA) the index to feature. Those 30 stocks, which supposedly represent a cross-section of the US economy, was -2.4% YTD through the end of September. The bottom line: not all major indexes are higher this year.

Interest rates remain near all-time lows and according to experts, aren’t expected to go higher anytime soon. Inflation is another story, as we keep hearing about the potential for this to rise for a multitude of reasons. This will be something to keep an eye on going forward.

In the latest jobs report before the election, we received more positive news about getting Americans back to work. The unemployment rate dropped to 7.9% as the U.S. continues to dig itself out of the hole caused by COVID-19. The rate had been as low as 3.5% in February (pre-pandemic) and as high as 14.7% in April (mid-pandemic). For a visual, here’s a 10-year chart of the unemployment rate:

One of the biggest challenges for people, in my opinion, is the constant inundation of news people are watching – tied to both COVID, political battles, and the markets. I see pundits all the time appearing as-if they know where markets are headed. In turn, it makes investors feel compelled to do something.

Well, truth be told – it’s often best to do nothing! Especially if you have a plan in place and nothing material has changed with that plan or with your situation. Trying to outguess the market rarely works, and I am always encouraging investors to refrain from emotional decision making.

Many investors think there is some investment strategy surrounding which party wins the Presidental election. They attempt to identify which investments will do well once the outcome is known. This ideology rarely succeeds, however.

Instead, data suggests that election outcomes are not meaningful for market performance. Presidential themes may never come to fruition or may take several years to develop. A recent example is the high expectations for Trump’s themes of energy and infrastructure – they have never developed as much as they were hyped.

What I have observed in election years is this: a voter whose presidential candidate ends up losing causes that person to be in a bad mood. They become more pessimistic, fearing doom and gloom in years ahead, and allow that mood to dictate their investment decisions. They tend to get more conservative.

Similarly, if a voter’s candidate wins – they find themselves in a much happier mindset. They feel better about the future of the country, and therefore want to be more aggressive with their portfolio. They may take on more risk than they normally would given their age and circumstances.

Which of those is right? Neither! At the end of the day, historical studies show party-specific fears to be unfounded. While S&P 500 returns (since 1929) have returned more under Democratic administrations than Republicans, this is merely a data point. There are many random factors that play a part. Yes, corporate profits matter, as do business cycles, but no one can predict events like 9/11 terrorist attacks.

Similar to investing, past performance of election results is no guarantee of future market results. Broadly diversified portfolios tend to survive well regardless of who prevails in November. Volatility could very easily spike higher with the uncertainty of the election and developments on the health front. But any volatility that arises could be been short-lived, once the immediate hurdles are cleared. 

So regardless of the headlines and negativity, focus on controlling what you can control. Saving. Diversifying. Enjoying life. Sleeping well. Staying healthy. Minimizing time on social media. More memories with family. And as it pertains to your portfolio, maintaining an even keel. Steady heads typically prevail.

Brandon

 

Disclaimer: This information contains forward-looking statements about various economic trends and strategies. You are cautioned that such forward-looking statements are subject to significant business, economic and competitive uncertainties and actual results could be materially different. There are no guarantees associated with any forecast and the opinions stated here are subject to change at any time and are the opinion of the advisor. Data comes from the following sources: Census Bureau, Bureau of Labor Statistics, Bureau of Economic Analysis, the Federal Reserve Board, and Dow Jones. Data is taken from sources generally believed to be reliable, but no guarantee is given to its accuracy.