Updated: Aug 20, 2021
Politics are the topic of conversation today, as they are now the dominant market mover. The Federal Reserve has talked about the need to add additional fiscal stimulus, based on high frequency of data suggesting the recovery is slowing. The Democrat-controlled House enacted the Heroes Act, a potential $3 trillion stimulus package, but it is not likely to move forward. The bill has $417 billion earmarked for aids to states — which Republicans view as an unfavorable “bailout.” In addition, the nomination of Amy Coney Barrett is dominating headlines.
There is still substantial political uncertainty around the election. Democrats worry that if President Trump does lose the election, he may not concede under claims that the process was rigged. Mail-in ballots have been at the heart of this controversy. There are rumors that the Democrats are agreeing to mail-in votes because of the large number of disqualified ballots from legitimate voters. Some of this was covered in the presidential debate by President Trump and Vice President Biden on September 29th.
During the debate, President Trump interrupted an overwhelming amount of times and was overly antagonistic with an attempt to cause Biden to have a senior moment. I think I would have had a senior moment in that environment as well. Trump was the initiator, but both were rude to each other. Biden refused to answer the "pack the court" question. Both of them seem to say they will respect the outcome of a fair vote but leave legal options open.
With Vice President Biden talking about raising taxes and shutting down the economy again, our Investment Committee would likely keep an overweight to our COVID-19 stock positions.
There is a constant rise in daily COVID-19 cases in the United States, but the number of positive cases continue to decline. This could be explained by an increase in new testing.
Florida removed all restrictions and is open for business, despite persistent cases. While on the other side of the world, Europe has a rising case count, but they are unlikely to go into lockdown again. Also, we continue to watch Sweden regarding their cases, since the country never instituted a lockdown. Right now, there is a slight uptick, but they are still in a downward trend.
The Economy & Market
GDP growth is slowing down as expected, as we cannot stay at a 14% growth rate for a prolonged period of time. Unemployment in the United States is very concerning, as we should be adding more jobs in the market.
Real estate is getting hit pretty hard as well. No one knows what to expect or how it will all pan out. The annual rate of sales in the last four months has increased more than 77%. At the same time, builders’ supply dropped to just 3.3 months’-worth at the current sales pace. A 6-month supply is considered a balanced market. Supply was at 5.5 months in August 2019, according to the U.S. Census. The supply situation is even tighter in the market for existing homes. It’s down nearly 19% annually to a 3.0-month supply, according to the National Association of Realtors.
Prices for existing homes are now soaring, up double-digits from a year ago. Still, the price of new homes has declined as more starter homes are built. These are all indications are that housing strength will continue.
Retail is still facing low inventories and long restock times. Buy Christmas presents early! Money supply continues to slow, but we are starting to see positive numbers each week. This may be signaling the market pullback is nearing the end.
We do not think we have seen the bottom of the market, but most of the downside has been realized. The dollar has also railed this week, which is hurting the value of gold. Technically, technology has rebounded as well. All in all, the market is no longer climbing its wall of worry.
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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.