July – September, 2020
We hope this letter finds you and your family safe and healthy. As the third quarter of 2020 comes to a close, we find that our general outlook has not changed much in the past few months.
Government stimulus is being injected into our economy at a level which we have never seen before. On the fiscal side, Congress has pumped over $2 trillion into the economy in the form of stimulus checks and business loans. In addition, more government stimulus programs are currently being debated in Congress. On the monetary side, the Federal Reserve lowered short-term rates to basically 0% and implemented an open-ended bond buying program. More importantly, in the past few weeks the Federal Reserve has pledged to keep rates near zero through 2023. It is our view that this amount of stimulus and liquidity has a significant positive effect on stock prices.
The coronavirus is impacting our families, businesses, communities, and even our way of life. As a large part of our country embraces colder weather in the coming months, there is a concern about a second wave of infections. How individual states respond to this potential increase will have a significant impact on the economy. Fortunately, there are several vaccine trials where early indications have shown some positive results. This is obviously a very fluid situation and one that we monitor closely every day.
We would be remiss if we didn’t acknowledge that we have elections in November that will decide the direction of Congress and the Presidency. As with the past few elections, this election looks to be emotionally charged. We would expect to see increased volatility in the markets until a winner is finally declared. However, it is our opinion that making long-term investment decisions based on an election has never been a winning strategy. Therefore, we do not plan to deviate from our overall investment philosophy leading up to the election.
From a stock market standpoint, we continue to believe that prolonged fiscal and monetary stimulus will support the stock market until a vaccine is approved and the economy can return to normal. As to fixed income, we are remaining flexible and will evaluate longer-term options in the coming months. Clients with fixed income portfolios should expect higher cash balances and increased Treasury bill holdings for the next few months.
Please do not hesitate to call us if you have any questions or want to discuss in more detail.