The third quarter of 2020 is in our rearview mirror. Let's recap what transpired over the summer months.
Market Recap
The V shaped recovery continued during Q3 2020 with the S&P reaching new records. The index was up 8.93%.
Fun fact, this was the quickest bear market recovery in history!
The disconnect between the stock market and the broader economy remains high. The stock market is not the economy and the economy is not the stock market.
The Broader Economy + Coronavirus (because they are so intertwined)
Coronavirus continues to dominate headlines as the growth and decline of the public health crisis is directly correlated with unemployment, GDP, consumer confidence and many other macroeconomic indicators.
Vaccine? Not yet and not very likely in 2020. All major drug companies producing a COVID-19 vaccine have fallen short in trials.
Stalled stimulus. A stalled legislature has resulted in a lack of additional stimulus from the Federal Government. This will likely dampen economic recovery moving forward.
The global economy is expected to contract by ~4% this year.
Sustainability
Climate week was held in September. Key takeaways:
GE committed to no more new coal powered plants
BP declared the end of growth in oil demand
The European Union has committed to being carbon neutral by 2050
China speeds up plans and targets carbon neutrality by 2060
We have continued to see record capital inflows into ESG funds!
Sustainable investing is changing the world faster than you think.
With 2 weeks to go until the US Presidential election on November 3rd (GO VOTE!!), political and economic uncertainty remains high. This is especially true because our collective well-being is still firmly rooted in a global pandemic. As investors, we need to expect the unexpected with the current public health crisis, politics, and any ramifications of the upcoming election.
So what does all this have to do with your investments? TLDR; stay the course, the market doesn’t care which party holds the executive branch.
It is crucial to remember that the short-term direction of stock prices is never predictable. No one knows if markets will be higher, lower, or flat six months from now. We are not short term investors. That would be gambling. We are long horizoned. We believe news headlines and market volatility should be mostly ignored. In Brad McMillan’s recent post “Does Politics Affect the Economy?” Brad argues that “the effects on the economic growth rate, over the longer term, appear very limited.” This statement is best complemented with the following chart of US GDP growth from 1950 to 2020:
In short, the United States has had consistent GDP growth regardless of which party holds the executive branch. Stay the course.
But seriously, go vote.
Gideon Cohn