October 9, 2020
3Q Review and Outlook
After the strongest August in 34 years, momentum reversed in September. The S&P 500 Index finished the month down 3.9%, but still left the index up 5.5% on the year. The decline in September was led by the mega-cap growth stocks that had helped drive the market to new highs coming off the March lows as jitters over oil prices, potential new lockdown restrictions and all things election-related began to come to the forefront of the news cycle. Is this the long-awaited rotation out of COVID-proof stocks as the economy moves toward a fuller reopening? Or are the most overbought stocks leading a sell-off that will spread throughout the stock market? We think it’s too early to tell but our opinion of headline news items hasn’t changed: We think all the headline worries are too widely known, too small or too sociological (meaning, disconnected from economics or markets) to impact much beyond investor sentiment. These are the kinds of stories you get in a correction, not at the beginning of a bear market, in our view.
Correction aside, U.S. stocks have made up significant ground since their March lows and going forward we think the rally can continue. We see COVID-19 vaccines and therapeutics as a key potential driver moving forward. Positive vaccine progress this fall could further boost stocks. Alongside the ongoing battle with the pandemic and its economic fallout is a pivotal U.S. election. As far as the election goes, politics and its impact on markets are hard to predict and rarely play exactly to script. Markets are anticipatory, and investment opportunities must be framed relative to current pricing. That said, volatility historically has trended higher as elections near, and this year is likely to be more pronounced and it would not surprise us to see a contested election that drags on, exacerbating volatility through December.
While we may see further corrections in the near and intermediate term we believe that increased cash on the sidelines could make a return to stocks as election and coronavirus-related uncertainty abates as stock valuations appear attractive relative to bonds given the fed and it’s extremely favorable monetary policy stance. Corrections can begin at any time, for any or no apparent reason and once you realize you are in one, it could very well be nearly over. Therefore, in our view, the best course of action when sudden volatility strikes is to do nothing. Be patient, keep your long-term goals first in mind, steel your nerves, and don’t react. Remember corrections are normal and accepting their temporary declines goes hand in hand with reaping stocks’ long-term rewards.
This commentary on this website reflects the personal opinions, viewpoints and analyses of the Gainplan LLC employees providing such comments, and should not be regarded as a description of advisory services provided by Gainplan LLC or performance returns of any Gainplan LLC Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Gainplan LLC manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.