Hello and happy Monday to everyone.
Good news and bad news. Bad news first; some of us will not like the results after tomorrow but the good news is that the election is finally tomorrow! I am looking forward to not seeing the dramatic political commercials anymore. Though, I will plant the seed that the current information coming in does seem to be mixed on if we will actually know the results by tomorrow night. In fact, some states are allowing their mail in ballets to still count if they mailed in by a certain date and time. This means, it is very unlikely that those ballots will be received by Tuesday night and in return we may know some of the results by tomorrow night, but not all. We are also receiving some mixed opinions on if it does end up being a narrow win, will the other candidate contest (aka challenge) the results and call for a recount. If that happens, how long will that process drag out the results…yikes?
With the market dropping and giving a good buy in opportunity last week, we went ahead and bought in an additional 10% into stock funds. Models #2 and higher went from 20% stocks-80% bonds to now 30% stocks-70%bonds. Model #1 is normally a 20%S/80%B split, so we left that one alone. This dip last week was primarily centered on Covid-19 news and numbers increasing (see updated Covid-19 numbers below). Our investment committee met on this topic and played out the pros and cons to staying where we are at 20%S/80%B going into the election vs moving to a 40%S/60%B. The election has the ability to move the market up and down, but not drastically. Plus, the vaccine has been pushed back and we still haven’t seen the new stimulus package. The vaccine and the stimulus are indeed both positive things for the market but the market had an emotional reaction to them being delayed even further. Buying in the additional stock on a sizable dip last week was a calculated move knowing that we still have some positive news ahead when the vaccine and that stimulus are finally released. Also, November and December are typically the two best months of the year for the market, as people spend more in those two months for the holidays. This time we opted for a 10% buying of stocks versus another 20% because we are going into a volatile election in coming days/weeks. If the market goes up after the election, great we made more money. If the market goes down a bit, then we can use that as another opportunity to buy an additional 10% stock.
We have documented from analysts perspective how the market reacts due to elections, in the previous email.Performance DJIA:
Mon 10/26 -2.99%
Tues 10/27 -0.80%
Wed 10/28 -3.43%
Thurs 10/29 +0.52%
Fri 10/30 -0.59%
Last week -6.47%
Since 2/19 market high -9.70%
Fox Business. Stock market predictor of next US president too close to call
- The S&P 500 has predicted 87% of all presidential elections and every one since 1984
- Superstitious stock-market investors will be glued to their computer screens Monday, searching for omens among arcane trading data that might signal the winner in the next day’s presidential election.
- One of the most widely followed signs remains unclear: The performance of the benchmark S&P 500 in the three months leading up to the vote.
- The benchmark S&P 500, which has predicted the winner of 87% of all presidential elections and every one since 1984, has slipped 0.35% from July 31 through Friday. The key level to watch for Monday’s close is 3,271.12.
- Typically, a decline has signaled victory for the challenger while an increase signified the incumbent would remain in power, though not all traders buy into that belief.
- “In order to draw any conclusion, you need a certain amount of data,” said Blair Hull, chairman of Chicago-based Hull Tactical Funds. “The number of elections we’ve had is such a small number that I would completely discount that.”
- No matter who wins the election, one thing is for sure, according to Hull: “There’s no information about whether a Democrat or Republican is going to create greater returns,” he said, citing data going back to 1900.
Why Markets May Dislike Divided Government For Once. OCTOBER 26, 2020 • EVAN SIMONOFF
When it comes to politics, stock market historians generally agree on one theory of how governments and markets interact: Divided government is a positive. Many of the great bull markets have occurred when one political party controls the White House and another sits in the majority of one or both houses of Congress. The great bull markets of the 1950s, 1980s and 1990s and the 2010 to 2020 eras all support this theory. But some think this time could be different. That includes Erick Weisman, chief economist and portfolio manager at MFS. He believes either a Biden victory and a Democratic Congress or a Trump re-election and a GOP senate would create an environment more likely to pass a substantial stimulus bill. And that’s what many think the economy and the markets need as millions of Americans remain out of work and many industries continue to operate at limited capacity. Divided government following next week’s election might not produce this optimal result. “If Biden wins and the Republicans keep control of the Senate, they are likely to give him little,” Weisman says. Indeed, Senate Majority Leader Mitch McConnell and other Republicans have shown little inclination to “go big” on a stimulus package. However, President Trump has. If President Trump is re-elected, Weisman reasons that his victory would likely to be accompanied by a Republican Senate. Under these circumstances, Republicans would be inclined to oblige the president at the beginning of a second term, even if they question another supersized spending bill on ideological grounds. It goes without saying that if there is the blue wave that some are anticipating, House Speaker Nancy Pelosi would be delighted to give a newly elected President Biden almost a blank check in the $3 trillion stimulus area. These sentiments were echoed Monday morning on CNBC by David Rosenberg of Toronto-based Rosenberg Research. One reason for the market selloff on October 26 were sudden signs, in his view, that Biden might capture the White House but the Republicans would retain the Senate. That would leave America’s economy at the whims of continued gridlock.
An Election Pattern You Might Not Know About. OCTOBER 30, 2020 • RYAN DETRICK
We at LPL Research thought we would add one last election forecaster to the mix of what we’ve presented over the last several months—as much because of what it might tell us about the American electorate as what it might tell us about the election. Since 1952, with surprising regularity, U.S. voters have given each party a second term in the White House to complete its legislative agenda. With equal regularity, they have flipped the party in the White House after eight years, resetting the balance of power in our two-party system. For all the talk of partisanship, voters seem to have chosen a kind of slow moving balancing act for more than 60 years. It’s almost as if they’ve seen worthwhile ideas in both parties, but have also rejected both parties when an extended stay in the White House might have led to those ideas being taken too far. The apparent pattern is really very simple. You get eight years to execute your agenda, so each party gets a second term. But once a party has been in the oval office for two terms, voters seek to reestablish balance. While the pattern did not work very well before 1952, with Democratic Presidents Franklin D. Roosevelt and Harry Truman holding the White House for five consecutive terms, since then it’s been right in 15 of 17 elections, or 88% of the time. President Jimmy Carter’s loss in 1980 and President George H.W. Bush’s win in 1988 were the only outliers. While it is a little naïve to say presidential election outcomes are simply due to the electorate seeking balance, there still seems to be something to it. Perhaps voters wanted President Barack Obama’s steady hand coming out of the financial crisis in 2008, but after eight years they thought the pendulum had swung too far and it was time to put an emphasis on a more pro-business approach emphasizing deregulation and lower taxes—an overly simple story but certainly part of what had happened. As Americans, we are a pragmatic nation. We always have been. It doesn’t mean we reject ideas or don’t seek new ways to pursue our democratic vision. But it does mean that we at least collectively understand that any idea taken too far starts to detach itself from what it was intended to accomplish in the first place. What does the pattern say about 2020? The forecast would be for a second term for President Donald Trump so that he has a chance to follow through on his policy initiatives. But if former Vice President Joe Biden should win, the American people might be saying the pendulum had swung too far too fast in a single term and it was time to seek balance. But either way, it only works because people go and vote, so whatever your perspective, we encourage you to vote and add your own wisdom to our 2020 election outcome.
New Bipartisan Retirement Bill Would Raise RMD Age To 75, Increase IRA Catch-Up. OCTOBER 27, 2020 • TRACEY LONGO
A comprehensive, bipartisan retirement security bill to improve retirement security and help Americans’ build more tax-qualified savings was introduced today in the U.S. House of Representatives. The Securing a Strong Retirement Act of 2020 would raise the age—to 75 from 72—when people have to begin taking required minimum distributions from their 401(k)s and individual retirement accounts. The bill also would exempt individuals with account balances of $100,000 or less on the last day of the year from the RMD rule. The provision would apply to distributions required to be made in calendar years beginning more than 120 days after the date the bill is enacted. The legislation also proposes the following:
- Promote retirement savings at an earlier age by enrolling employees automatically in their company’s 401(k) plan.
- Give individuals age 60 and older more flexibility to set aside additional savings by raising the catch-up contribution to $10,000 for those who participate in employer sponsored 401(k) and 403(b) plans, and adjust the threshold for inflation. Participants in SIMPLE plans could contribute an additional $5,000.
- Increase and modernize the existing federal tax credit for contributions to a retirement plan or IRA (the Saver’s Credit) The income limit for the 50% credit would be increased to $40,000 for single filers ($80,000 for joint filers and $60,000 for head of household). The amount of the contribution eligible for the 50% credit would be increased to $3,000.
- Allow individuals more flexibility to make gifts to charity through their IRAs.
- Allow employees to pay down a student loan instead of contributing to a 401(k) plan and still receive an employer match in their retirement plan.
- Create a new financial incentive for small businesses to offer retirement plans. The start-up tax credit would be increased to 100% of the costs, instead of 50%, for small employers with no more than 50 employees.
Global 46,963,726 cases 1,207,047 deaths
US 9,476,066 cases 236,501 deaths (+5.24%, +11,769 increase from last week) ***Double the numbers from the previous week
KS 86,613 cases 1,029 deaths
MO 193,386 cases 3,155 deaths
Highlights from analysts and economics
From JP Morgan
Notes on the Week Ahead
In the week ahead, it may be tempting to buy into a full and early recovery, as real GDP posts a record roughly 35% annualized gain for the third quarter. Part of this rebound reflects the lagged effects of the CARES Act, which provided a significant boost to consumer income. Indeed, consumer spending on goods has held up remarkably well in the pandemic, due to this extra income, the hoarding of essentials and the on-line purchase of a mountain of merchandise, acquired to add some solace to an uncomfortable stay-at-home lifestyle. Home-building is also booming in 2020, reflecting very low interest rates and the desire of many to move out of crowded cities.
However, it should be recognized that this largest ever one-quarter surge in GDP follows the largest ever one-quarter plunge in GDP. Even with this bounce, real GDP in the third quarter was likely roughly 3.0% below its peak of the fourth quarter of 2019. By way of comparison, the peak-to-trough decline in real GDP in the Great Financial Crisis was 4.0%.
For investors, it is important to understand how a slower recovery could impact financial markets. For a time, it may continue to suppress more cyclical sectors such as energy and financial services and benefit large-cap and growth stocks relative to their small-cap and value counterparts. However, it also means more government borrowing and continued Fed purchases of Treasuries through most of 2021 if not beyond. Lower-for-longer interest rates, a worsening trade deficit and an earlier escape from the pandemic among our major trading partners could sustain the recent dollar slide, benefiting international stocks.
Last, when the economy finally does recover from the pandemic later in 2021 and 2022, our public finances will have deteriorated further. This could put greater upward pressure on long-term interest rates, hurting owners of high-quality, long-duration bonds.
In short, we should recognize that, despite a big GDP number this week, the human and economic toll of the pandemic sadly continue. For investors, it remains important to be broadly diversified to weather the rest of this pandemic while beginning to position themselves for an altered financial landscape when the covid-19 storm has finally passed.
Weekly Market Recap
Year-to-date, the S&P 500 is up 1.2%, but this performance hides a large dispersion between the top names and the remaining stocks. Specifically, U.S. markets have been led by a handful of growth companies, which have benefited the most as we shifted from our daily commutes to the office to working from home. As a result, the five largest names of the S&P 500 by market capitalization have returned 38.6% so far, while the remaining stocks are down 4.8%. Additionally, the strong run from the bottom seen in March has boosted the P/E ratio of the S&P 500 to the its highest level since the tech bubble. The P/E ratios of the overall S&P 500 index and excluding the top 5 names have tended to track each other in the past, but a gap has emerged recently. While the valuation of the overall index is significantly above its average since 1996, the P/E ratio of the index excluding the largest stocks is only modestly more expensive than its history. This suggests that there are potentially more attractive stocks outside of the mega-cap ones, highlighting the importance of active management to identify the right opportunities.
Six tips for weathering market anxiety
This autumn could cause some “Pepto Bismol days” for investors — and possibly lead them to make hasty, fear-driven investment decisions. And so I present to you some tips to help weather market-driven anxiety in the upcoming days and weeks:
- Expect volatility. We have multiple potential sources of uncertainty, which can lead to significant volatility and stock market sell-offs. If you expect this kind of market environment, you are less likely to be rattled by it.
- Keep in mind there is always some positive news under the scary headlines. We may not know who our next president is on the night of Nov. 3, but we will likely know within a week or a few weeks — and we will certainly know by Inauguration Day in January, which is a relatively short period of time in the grand scheme of things. And fiscal stimulus is not a question of “if” but “when.” We might not get it in 2020, but I believe we are likely to get a significant stimulus package in early 2021. Finally, while COVID-19 infections are on the rise, serious illnesses and deaths are much lower than they were this spring. Last week Dr. Scott Gottlieb, former commissioner of the US Food & Drug Administration, tweeted about two new peer-reviewed studies showing a sharp drop in mortality among hospitalized COVID patients. The drop is seen in all groups, including older patients and those with underlying conditions, suggesting providers are getting better at treating the illness.8
- Don’t make major portfolio changes due to fear. In my view, this volatility likely won’t have a lasting impact on asset classes. It’s critical to stay focused on your long-term goals — and to talk to your financial professional before making major changes to your financial plan, to make sure your decisions align with your goals.
- Look for opportunities. Uncertainty and hardship have a funny way of creating opportunities. For example, while many Western countries have had difficulty controlling the pandemic, countries such as South Korea, China, and Japan have been very adept at controlling the virus. We could see these countries benefit by attracting more foreign investment and expanding supply chains in their countries. After all, COVID-19 will likely not be the last pandemic we see in our lifetimes, and so the ability to control this virus may confer an advantage for handling future crises.
- Remember what matters. In my view, monetary policy matters more when it comes to capital markets. In a recent presentation I made to institutional clients, I informally polled them about which factor they thought would have the biggest impact on markets in the near future. The options were fiscal policy, monetary policy, the presidential election, and COVID-19 infections. I was surprised to see that the top answer was COVID-19 infections, as I strenuously disagree. Yes, stocks fell substantially last February and March as COVID-19 spread. However, soon after the Fed began its very accommodative monetary policy response in March, stocks began to rise. The Fed has been a powerful force moving stocks higher. And so while we could see short-term sell-offs related to disappointing news about COVID-19 infections, I believe the very accommodative monetary policy environment we are in will matter more. In my opinion, who runs the Fed is far more important than who sits in the White House.
- Try to relax. Maybe have some wine instead of that Pepto-Bismol. Pandemics, consequential elections and poor fiscal policy choices have all occurred before, and yet the stock market has survived and risen over time.
I learned a long time ago that there are many things we can’t control — all we can do is manage our reaction to them. The “Pepto-Bismol” days of parenting couldn’t be avoided — skipping that dreaded parent-teacher conference would have only made things worse in the long run — so I leaned on my network of friends to help me get through. Similarly, if the next few weeks end up inducing a bout of investor indigestion, your financial professional can help you stay focused on your long-term goals, make sure that your portfolio decisions are aligned with your goals (and not your fears), and find opportunities that may present themselves.
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As an independent insurance agent that contracts with major carriers, I can help you decide which plan is right for YOU! Whether you are in the market for Medicare Supplements, Prescription Drug Plans, Advantage Plans, or just want to know your options, I can guide you through the process.
Community Café is Wednesday, November 4 at 8:00am for 30 minutes. Topic will be on: “Myths & Facts About Healthcare Directives”
- Will live stream on Facebook Live anyone who is friends with me on Facebook or Click Here to Follow The Community Café Facebook Page
- Invitations will go out via email with a link to join on zoom.us, plus those who are friends with me on Facebook
- Speaker this week, Glenn Stockton & Mark Roberts
- Invitations will go out via email with a link to join on zoom.us, plus those who are friends with me on Facebook
Estate Planning Webinar Tuesday November 10 at 6:00pm, Wednesday November 11 at 11:00am & Saturday November 14 at 10:00am
- To Register for either date please email Stacy at [email protected]
- Pros and cons of a Will based estate plan
- Pros and cons of a Trust based estate plan
- Co-hosted by Glenn Stockton with Stockton & Stern Law firm
Social Security and Tax Strategy Webinar on Tuesday November 17 at 6:00pm, Wednesday November 18 at 11:00am & Saturday November 21 at 10:00am
To Register for either date please email Stacy at [email protected]
If you would like a copy of my 30 minute recording of Community Café on the topic of “Tax saving Strategies”, please contact Stacy and we can email it to you. [email protected]
Referral rewards program:
Mark Roberts, President
Affinity Asset Management
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Overland Park, KS 66213
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