“Who’s to say what’s impossible? Well they forgot, this world keeps spinning, and with each new day, I can feel a change in everything.”
A rather obscure song lyric this month… it’s the song “Upside Down” by Jack Johnson as part of the soundtrack for the 2006 movie Curious George. It’s not to be confused with the 1980 greatest hit of Diana Ross’ solo career of the same name, although that melody is one that easily sticks in your head. I chose this quite different version because Curious George was a monkey who was often hanging down from a tree and looking at the world with wonderment. I’m not a lesser primate or even a sloth, but these lyrics designed for a children’s sing-a-long are certainly applicable today.
Gee… I guess not much happened in September…. Wrong! Here’s just a sample of headlines:
- COVID-19 deaths in America top 200,000.
- Western wildfires remain largely unchecked.
- Supreme Court Justice Ruth Bader Ginsburg dies.
- Congress still is unable to pass a supplemental stimulus package.
- The first Presidential debate ushers in a contentious five weeks before the election.
- The Cincinnati Reds and the Cleveland Indians both make the baseball playoffs.
- The Big-10 and Pac-12 conferences finally decide to play football.
- Students of all ages return to school in a variety of ways.
- Potential Coronavirus vaccines enter third stage trials.
- President Trump has allegedly paid less in federal income tax over the past fifteen years than the vast majority of Americans who are above the poverty line.
These are only ten stories, and I could have easily named a couple dozen more. The fact is that September was a month with plenty of uncertainty from a news flow perspective. Stocks generally react adversely in times like this, and the last thirty days were no exception. All of the major averages were lower this month, although the third quarter was largely positive. Volatility returned in a substantive manner. According to Standard & Poor’s, early fall is historically the most negative time of the year. Therefore, we’re following that trend a bit. Will it continue into October and beyond? It’s anybody’s guess, but continued volatility seems like a good bet.
In today’s immediate information/reaction paradigm, Wall Street reacts in real-time. Algorithms control the volume of trading rather than longer-term human analysis and opinion. That’s what makes it incredibly difficult to predict what will happen in the short-term. Here’s one bold prediction: the outcome of the election will matter less to the markets than either monetary policy or further progress toward a COVID-19 vaccine. Let’s remember that the stock market is a very efficient arbiter of predicted future cash flow and profitability. As long as Chairman Powell and the Federal Reserve keep interest rates low, individuals and companies alike can borrow money quite cheaply. Once a vaccine (or even an effective prophylactic) is found, life will SLOWLY return to some semblance of normality. The two above points can only be interpreted to be positives for stocks. Fixed income should continue to perform well while the interest rate environment lasts. The wild card could be in precious metals, which might be outliers in the event of a Democratic sweep.
While many of us are feeling like we’re upside down in a rapidly spinning world, we’ve got to remain focused on the long-term. Science will eventually win. When it does, we’ll be able to re-assess conditions and react accordingly. In the meantime, stay safe and stay sane. Don’t forget that Curious George was a pretty cool dude.
RC, Ruth, Christie, and I are here to answer any questions that you might have… just let us know your thoughts. We look forward to hearing from you soon.
The opinions expressed in this letter are those of William Schiffman and should not be construed as specific investment advice. All information is believed to be from reliable sources; however, no representation is made to its completeness or accuracy. All economic and performance information is historical and not indicative of future results. Diversification cannot assure a profit or guarantee against a loss. The S&P 500 Index is a broad based unmanaged index of 500 stocks, which is widely recognized as representative of the equity market in general. Indices are unmanaged and do not incur fees. One cannot directly invest in an index.
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