October Surprise
As if 2020 wasn't already full of shocking twists and turns, news of President Trump's COVID-19 infection added another unexpected development in a bizarre year. It's anyone's guess what the next curveball may be. Surviving the potential ups and downs of the next weeks and months rests not on an ability to predict the future, but on solid planning built to weather whatever the world sends our way.
Despite a rocky September, global stocks gained 8.1% for the quarter and are up 2.9% for the year to date. While the gains were widespread, large US stocks continued their leadership in the third quarter and are now up 7% for the year. US small-cap and most foreign markets continued a modest recovery from the steep March selloff but remain down for the year.
Bonds stalled in the third quarter after posting strong returns earlier in the year, as investors met a shift in Federal Reserve policy with an extended yawn. The Fed indicated they intend to let inflation run above the 2% goal to make up for lost ground. Investors doubt that shift in strategy will amount to a material short-term change in the economy. For now, we expect the current low-interest rate environment to hold even as the economy continues to recover.
Despite the current jobs and profits hole created by the pandemic, the vociferous stock market gains in the second and third quarters are a reminder that it’s the rate of change in the economic outlook that drives markets. Financial markets often cover the most ground when the outlook swings from dire to tolerably ugly.
It's foolish to predict what the next three months will bring. Top of everyone’s mind is the contentious election conducted as the COVID-19 pandemic persists. Delayed election results and lawsuits are not out of the question. Nevertheless, the world will carry on and continue to learn and grow from today’s challenges.
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