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Market Update August 26: Stressing the System

Market Update August 26: Stressing the System

September 08, 2020
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While we continue to see a decline in new daily COVID-19 deaths, the pandemic’s psycho-social effects are growing. The country’s rate of anxiety has tripled, and depression has almost quadrupled. On top of that, parents are concerned about the risks for their young children not attending school in person.

Emotions are also running high around the 2020 election — which is only three months away. As expected, the Democratic and Republican National Conventions both sparked a significant uptick in polling.

Now, let’s move on from current updates to Economic data.

Retractions Against GDP Growth

There was a retraction against GDP growth due to employment information. With the latest data, new weekly claims have been above the one million mark for 21 of the last 22 weeks. I do not want to make too much of the difference between last week’s number, just under a million, and this week’s number, just over a million, but the continuous increase suggests that there are more serious problems in the economy.

Anyone getting laid off now is not likely to have a job to go back to for a while until the lockdowns are lifted. Many marginal businesses simply cannot survive any longer being shut down or seeing limited street sales. They are pulling the plug.

Price Indexes

For those who don't think there is a price explosion at the consumer level for goods people want to buy, just take a look at the price chart below.


The general price indexes released by the government, at this time, are not picking up the very strong spikes in consumer goods and services purchases. Still, sales online and in person are booming.

Money Supply

What happens from here all depends on federal activity. If the Fed expands money supply again, you will be back in the stock market at 100%. If the money supply slowdown intensifies, you will take even more profits. Volatility may not be our friend in the short-term, but it will provide a wide opening for major opportunities in the long-term.

The Federal Reserve on the Money Pump

We now know that Federal Reserve officials said at their meeting last month they expected the economy would require greater government support to recover from the coronavirus pandemic. 

Minutes from the Feds July 28-29 meeting released Wednesday, officials started to believe more government spending would be needed to prevent a longer downturn as a result of the lockdowns across the nation. A number of officials also believed more stimulus from the Fed could be required.

Near Term Relative Strength

Gold is not the only asset giving back recent gains. There is a rotation away from technology as well. This is likely some fear coming out of the market. The beneficiaries have been small and mid-cap as well as unloved stocks in the S&P 500. This means many of the stocks in the market have some runway here.

Follow GWS on YouTube 

For the full video recap of the webinar on which this blog post is based, follow GWS on YouTube. (If a recent episode isn’t posted there yet, it’s still in compliance review). And be sure to tune in to our weekly Gatewood Wealth Solutions Market Webinar to hear updates on the current state of the market and economy. As always, we welcome you to share our broadcast links on social media or with your friends and family. They are more than welcome to listen in and learn our perspective on the market and the economy.

If you have any questions, please contact your Lead Advisor or any other member of our team.  We are here for you.

Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. All investing involves risk including the possible loss of principal. No strategy assures success or protects against loss. Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.

 

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