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We’ve had several requests for our thoughts on the market and how the upcoming election, the President’s health, Covid spread, a Covid cure, China trade tensions and a potentially contested election may impact the markets.  Here are our thoughts.

Let’s start with the picture above.  Let’s say, you’ve just finished dinner, you’re walking on the beach and you see this scene.  Are those normal clouds or storm clouds?  Is that normal surf or storm surf?  What does this picture say about the possibility of storms tomorrow?  The honest answer is…I don’t know.

What I do know is that we had to modify our investment process significantly this year to help us identify and deal with day-to-day volatility.  We have always evaluated investments with an eye on the 12 to 18-month horizon but the crash in March forced us to develop a tool to evaluate the health of the market on a day-to-day basis.  So, we built a tool to do that and now we literally check the pulse of the market every morning and every afternoon.  You can see the tool we built at the link below.  Focus on the far-right column.  If you see lots of green, that’s good.  If you see lots of red, that’s bad.  We update it on the website about once each week. Link: USAM Daily Risk Analyzer

Today, we are being asked on a nearly daily basis for our thoughts about the effect on investments by the upcoming election, the President’s health, Covid spread, a Covid cure, money printing by the Federal Reserve, China trade tensions and a potentially contested election. People are concerned about the potential for market volatility if and until whichever uncertainty passes.

Here’s what we see:

1. All elections come with uncertainty and 2016 was a perfect example. In the days and weeks before the election, U.S. stocks declined.  We took action to buy stocks and advised clients who wanted to hold cash to instead buy in the days BEFORE the election.  Why?  We believed the market would go up regardless of who was elected and pay our clients an “uncertainty premium” for buying while others were paralyzed.  The next morning stocks jumped straight up as investors scrambled to put cash back to work.  With the upcoming election, half of the country will be happy, and half will be disappointed – just like last time.
2. Millions of investors are concerned and have already begun selling stocks. The stock market should be down, but the selling is being soaked up by buyers.  That tells me that stocks are likely headed higher.  However – if you are one of the people who have sold stocks to reduce your risk, that is totally ok.  There is an old saying that if you are not comfortable, you need to “sell down to the sleeping point”.  If you are losing sleep right now because of your investments, it is ok to sell.  You just need to realize that I may be telling you to put that money back to work soon.
3. On Covid and the cure, there are 150 vaccines in development with 5 vaccines in the final stage of clinical trials. There is only one company that we know of that is working on a cure.  The evidence I see suggests that a vaccine could be available in the next 45 days*. (Sources: BioPharmaDive & FoxBusiness)
4. Abbott Labs has a 15 minute $5 Covid test that is being rolled out and I think will be used by airlines and cruise lines before you board.
5. The Federal Reserve has been printing massive amounts of money to stimulate the economy. I am asked, “Isn’t that terrible?”  The answer depends on what you do with the money.  If you hold your cash in the bank and don’t buy anything with it, yes, it is terrible.  Everybody knows someone who has old dollar bills or old coin dollars at home.  If those coins are not made of silver, then they are just worth the face value or whatever somebody might give you for them.  I have an Eisenhower dollar from 1971 (made of nickel and copper).  In 1971, one dollar would buy you 10 candy bars.  Today, the same one dollar will not buy 1 candy bar. Source: Candy    Stock prices tend to be correlated to the total amount of currency in our economy.  If the Federal Reserve is injecting money into the economy, stocks should follow.  The graph below shows the total money in our economy, called M3, plotted in blue with the S&P 500 in red.  The correlation is clear. Stock prices follow money supply.

6. China Trade tensions have eased, and I have not seen much in the headlines lately. The Chinese have purchased more agriculture products than at any time in history.  The President will tell you it is because of the “good deals” that he negotiated.  I will tell you that is has something to do with massive flooding of Chinese farmland.  Source: CNN

Earlier this year, I suggested that a stock market decline due to the pandemic would probably bounce back in 6 months.  I was told by a former friend that I was crazy, that I was not taking this seriously and that this pandemic was different. Exactly 6 month later, we were back to where it all started.

The best advice I can give my clients today, is do not lose sleep over this or anything.  We believe we are capable of steering this ship and we feel we have made it through the storm. There will be more storms, but for now, enjoy this beautiful change of season and tell the ones you love that you appreciate them.

We invite your questions.  Call us at 678-894-0696 or email us at david.cross@us-am.com

Note: This material is provided as a courtesy and for educational purposes only.  All information contained herein is derived from sources deemed to be reliable but cannot be guaranteed.  All economic and performance data is historical and not indicative of future results. Neither asset allocation nor diversification assure or guarantee better performance, nor do they eliminate the risk of investment loss.  As with any investment strategy, there is the possibility of profitability as well as loss.  This note does not constitute a recommendation or a solicitation or offer of the purchase or sale of securities. This note may contain links to articles or other information that may be contained on a third-party website. Advisory Services Network, LLC are responsible for or control, adopt, or endorse any content contained on any third-party website.  The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.  Indexes are unmanaged and do not incur management fees, costs, or expenses.  It is not possible to invest directly in an index.