We are finally rounding the bend with the home stretch in view for the balance of 2020. This has been a year to remember so far, and I expect we will have more fireworks before this race is over. Two major factors will be impacting the way the economy and equity markets move between now and the end of the year. The Federal Reserve has assured us that they don’t plan any changes to monetary policy until 2023, so I don’t expect to see any significant changes in fixed income markets as a result of either factor.
As everyone now knows, I believe, for the first time in my career, that it makes sense to “time” the equity market by stepping out for the election this year. The risk for a substantial sell-off outweighs any risk for a drastic bounce and stepping aside until after the election is decided and the dust settles appears to be the most prudent action. This is only a temporary step, and I would recommend that clients be back into the markets by no later than the end of May, regardless of the outcome of the elections. I plan to move my money out by October 15 and reinvest approximately 30-45 days after the final outcome is decided. Because this election is setting up to be contested regardless of who appears to win, there will be a period of complete uncertainty, and history tells us that the equity markets can’t stand significant uncertainty. Electoral votes must be cast by December 14, but court battles can still blur the result. If it goes on this long, there will be an opportunity for the S&P and NASDAQ to easily fall 35-50% before we see the recovery.
This will be only one of the important events, and the other is the continuing pandemic and if or when we will have an expectation of relief. At this point, it is difficult to determine where the vaccine testing really stands, with different comments coming from all the “informed” sources. Until there is clarity on this whole issue, news will have daily impact on the markets because the computer algorithms appear to be using this news as part of the daily trade trigger. This just adds volatility that exacerbates any market moves that are tied to virus news. As soon as we have some concrete news on vaccines, treatments, or a significant drop in cases, the markets will probably have rapid recovery regardless of the election results. This is part of the reason we can’t be out of equities for very long after the election is certified! There is a lot of hope that the recovery will continue without big interruption and getting people out of lockdown will be a huge impetus for that recovery to accelerate. It is wishful thinking to expect a vaccine to be widely available between now and Thanksgiving, but that would sure be something to be thankful for.
These two factors surround all the other issues that have had and will have an impact on our business going forward. So far, The Leaders Group has had a good year with revenues up by more than 20% and increasing our count of financial professionals by over 200 since 2019. The new AG49A will have an impact on indexed insurance products, and many carriers are looking at registered products to avoid some of the issues created. Lower interest rates continue to drive money into the equity market in both growth and value stocks looking to replace the less than 1% returns in fixed income. New regulation and higher taxes will lead to new opportunities for us to provide new solutions for our clients. All of this will lead to a successful future in our industry and more potential for our clients to prosper with our advice.
As we head down the final stretch of 2020, we can see the end of the year but still not see all the obstacles between here and there. We will try to continue to provide insights throughout the fourth quarter and look forward to a thankful, merry and happy holiday season as we get to the end of this most memorable year.
All my best to a hopeful year end, a thankful November and a joyous holiday December!
Stay Safe and God Bless!
Dave