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October 2020 Monthly Review

"I Ain't Scared of No Ghost"

By Loyd Johnson, Chief Investment Officer
LJohnson@fcbanking.com
412-208-7687
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Loyd Johnson PhotoA Look Back

With a reference to the Halloween holiday that just passed in October, the above line is from the classic 1984 movie, Ghostbusters. The title song was performed by Ray Parker Jr., which inspired another famous line of “who you gonna call?”

As we’ve outlined before, our markets are extremely resilient…even in a year like 2020 with the global Coronavirus pandemic and all the uncertainty and grief associated with it. In addition, we were days away from an election in the United States that had all the earmarks of providing additional uncertainty and market volatility. And yet here we are in early November with the election mostly behind us and the S&P 500 only a few percent off of all-time highs! We did see a continuing switch in the month, with other asset classes outperforming the large-cap index. U.S. small-cap and Emerging Market stocks both outperformed in the month and have put up better numbers over the last several months, as some of the tech names that had carried the market over the last year took a breather.

Third quarter earnings reports were a positive surprise, with over 85% of the companies beating analyst estimates. After a historic decline of 31% in the second quarter, the GDP had an equally historic rise of over 33% in the third quarter based on the first estimate released in October. Also, in the face of surging Covid-19 cases, the U.S. regained 638,000 jobs in the month and the unemployment rate dropped from 7.9% to 6.9%. We still have a way to go on that front, as around 10 million of the nearly 22 million jobs lost early in the pandemic have not been recovered. However, the trend has been positive as we all manage this “new normal.”

A Look Ahead

What better time to look forward! We are never without our obstacles and hurdles, and perhaps that is particularly so now. We have no illusions that with the current election in the rearview mirror all will be dandelions and butterflies…but why not be optimistic?

We still live in the greatest country on the face of the earth and we, as a people, have shown our own resilience time and again in our relatively short history. If the first week of trading in November is any indication, the market seems okay for now. We rallied nearly 8% in the first five trading days of the month. We will continue to be more concerned with the underlying valuations of the markets, as they always…eventually rule the day.

It is our belief that if the Republicans retain control in the Senate, as it looks like they will, that should provide enough checks to ensure just the right amount of political gridlock to accommodate the markets for now. The surging Covid-19 cases remain a real concern as we approach the winter months and the dreaded flu season. We remain neutral in our balance between stocks and bonds and would take the opportunity to prune our stock allocation should the immediate rally continue. We believe that advances in how we treat this virus remain critically important…perhaps even more important than an eventual vaccine in the present.

The Fed is in a perm-hold climate as short-term rates are likely to stay near zero for the foreseeable future. That is good for some, but not all. There may very well have to be a reckoning with all of the recent government money doled out over the last several months. There usually is. However, for now it is with clear eyes and strong hearts that we look forward. Setbacks will appear…as they always do, but we refuse to be afraid of any ghosts and instead we trust in the long-term perseverance and success of our country.