Facts:
- Unemployment reads 10.2%, compared to last month’s 11.1%.
- PMI (Purchasing Managers Index) expanded to 54.2, compared to last month’s 52.6.
- The S&P 500 (C Fund) increased 5.64% during the month of July.
- The Fed Funds interest rate remains between 0% – 0.25%
- However, GDP for Q2 dropped to an eye-popping -32.9%, according to the first Q2 estimate.
Assessment:
The GDP numbers were not a surprise. The market already knew this and is looking beyond the immediate drop, into the future.
There’s even grounds to say the market has priced in the presidential election. Below are the election charts I shared last month. The market doesn’t seem to make presidential elections as dramatic as the media does.
Also, even if there is a new president, that won’t necessarily make-or-break things. But, if/when a new president passes economically devastating policy (such as a Green New Deal or a variation of Socialism), then the markets will respond. But we will have to wait to see if such proposals come.
Regarding Covid-19: spikes in Covid-19 cases will not drive the market down. Only if the state-, federal-, and world governments halt openings, or worse, impose new shutdowns, will the market will drop, again. If that happens, buy more!
Here’s a collection of market responses to elections dating back to 1980:
- The Red Lines Represent the market performance YTD prior to the 100-day pre-election performance.
- The Blue Lines represent the market performance during the 100-days pre-election.
For those who want to see what happens the day of- and the day after elections, here is a graph:
source
Notice how most of the movement the day of is corrected the day after.
Bottom Line:
So long as governments don’t interfere, the markets should recover and blossom.
A point I am concerned with and monitoring is housing. The amount of defaults, evictions, and foreclosures is being stalled by the government. The government stalling may expire in the near future. That’s not a problem, unless people are still being prevented from working. Hopefully, the government can coordinate their efforts and allow people back to work before releasing the pent up housing forbearance rules. I’ll keep track of new market-impacting policy and keep you posted.
Below are my recommended portfolios for this month:
Stephen
