The Overlay of Averages
The velocity of this week’s news cycle feels like it must be hitting all-time highs. Financial markets have had plenty of reasons to experience price volatility in 2020; uncertainty has been high, and markets, for the most, part hate uncertainty.
Numerous studies have examined past elections looking at applicable clues for today. Global economic conditions, incumbent party, stimulus, and wars have all been factored into the analysis. Such comparisons have always been difficult as the overlay of averages can be broad and simplistic. We know that any years’ conditions, let alone the uniqueness of 2020, may have little bearing on predicting outcomes.
Importantly, shareholders invest in companies and not political parties. Companies focus on serving their customers and growing their businesses, no matter the political conditions. That doesn’t mean the elections won’t cause short-term volatility. Presidents and administrations can and do impact market returns; however, so do countless other changing factors like interest rates, inflation, oil prices, and pandemics.
When building an investment plan, we intentionally focus on diversification of investments and time periods to create progress towards goals. It is prudent to have a short-term plan for the known and unknowns that arise in the short term; equally, keep a long term view with your long-term investments.
Additional notes
Broad U.S. stock markets were higher on the week, snapping a 4-week decline
Broad international stock markets were also positive, led by emerging markets
The U.S. labor market extended its recovery for a fifth straight month in September, which has been good news for the overall economic recovery; recent job gains, however, were lower than expected (source: bls.gov)
The U.S. unemployment rate improved by declining to 7.9% from 8.4% (source: bls.gov. Sept. 2020 report)
The U.S. homeownership rate has jumped in 2020, reaching multi-year highs (source: census.gov); this fueled in part by falling mortgage rates, which still remain near historic lows
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