Volatility, after being at a low ebb in recent months, returned this week as stocks struggled for several reasons. First, a renewed surge in COVID-19 cases and subsequent hospitalizations have led to worries that another wave of lockdowns may be implemented, potentially hampering the economic recovery. Second, with the Senate adjourned until Nov. 9, a new fiscal stimulus bill will not be passed before the election. Lastly, investors may be removing risk from their portfolios heading into the election and thus creating a pullback in stocks. One potential source of risk for investors is the uncertainty that would accompany a contested election result.
While the volatility in the market was mostly driven by fear, much of the economic data released this week was positive. Durable goods orders in September rose, showing that manufacturing companies are continuing to rebound. Surprisingly, a notable increase was seen in orders for aircraft. August home prices were also released this week, showing their strongest gains since 2018. Cities such as Phoenix, Seattle, and San Diego came in with some of the highest gains.
On the earnings front, technology bellwether Microsoft handily beat consensus earnings estimates. As work-from-home and home entertainment trends remain strong, Microsoft has seen an uptick in multiple business areas including cloud computing and video games. Conversely, large pharmaceutical company Eli Lilly missed earnings expectations. Notably, its earnings were held back by a pick-up in spending tied to the company’s development of an experimental COVID-19 treatment.
Market volatility during election season is far from uncommon – the market simply does not like uncertainty – but it tends to be a short-term phenomenon. As time progresses, the emphasis will shift back to a focus on corporate earnings and economic growth. As such, while some clients may want to make significant adjustments to their portfolios around election time, I would encourage you to look through to the other side – as hard as it may be right now – and keep an eye on the long-term.
Stay safe and be well.
This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events or a guarantee of future results. The information is based on data gathered from what we believe are reliable sources. The information presented does not constitute a solicitation for the purchase or sale of any security and is not a recommendation of any kind. Please consult your financial advisor before making financial decisions. Past performance is no guarantee of future results. Investing involves risk and the potential to lose principal.