Gill Capital Partners End of October Market Update

“Once In A Blue Moon”

It’s 2020, so of course there will be a full moon on Halloween. A full moon on Halloween is a rare sight indeed. It will also be a “Blue Moon,” which is simply the second full moon in a calendar month. The full moon will also be visible across all U.S. time zones, a first for the holiday since 1944. These rare events just add to a long line of rare events in 2020; in fact, the next time we will have a full moon on Halloween will be in the year 2039. Making matters even spookier, November 1st is also when daylight saving time ends, giving the animal spirits extra time Saturday night into Sunday. It is unclear what Halloween and its associated traditions will look like this year. Trick-or-Treating and Halloween parties will likely be more subdued, if they happen at all, as virus cases are spiking once again. Speaking of animal spirits, they are alive and well in the stock market right now. Increased virus cases worldwide have the market spooked, with investors fearing another round of lockdowns and what that might mean to an economic recovery that is still tenuous. More on the markets below, but first, it looks like we finally found good use for all of that toilet paper….

Market Update – The past two weeks have seen the stock market pull back yet again, with the S&P 500 down roughly 7% from its recent high on October 12th. The market has been struggling for the past couple of weeks as hopes for a new stimulus package before the election have faded. This, combined with fear of rising virus cases globally and election anxiety, are dampening investor sentiment.

Stimulus – Investors were hoping for another round of stimulus before the election, but Congressional, White House and Treasury leaders have been unable to come to an agreement that they all support. Sticking points continue to be centered on scale and form as Democratic leadership is pushing for a much larger relief package than Republican leadership will support. Furthermore, Congressional Democrats have been unwilling to reduce or remove fiscal support for state and local municipalities, a key sticking point for many Congressional Republicans and the White House. So, it appears that stimulus talks are tabled for now, with both sides hoping to re-enter negotiations following the election. The market is certainly disappointed by the impasse and was hoping that support would come for businesses and individuals who are struggling, particularly those in the travel, hospitality, and restaurant industries. These businesses are facing the dual threats seasonal challenges and a resurgence in the virus that has led to increasing restrictions, with many wondering how they will survive the winter. It is going to be a tough winter for many businesses, yet the market is still hopeful that a significant stimulus package is still in the works.

Virus Resurgence & More Lockdowns – Virus cases are at or near pandemic peaks in many parts of the U.S. and across the globe. A spike in cases is leading to tightened restrictions in many parts of the U.S., Europe, and around the world. On the positive side, there is hope that a vaccine will be available in early to mid-2021, and possibly sooner. Further, the medical community’s understanding of the virus has improved greatly and treatment options have improved, which has led to significantly lower death rates than at the beginning of the pandemic. However, increased restrictions, including another round of shutdowns, are on the table again if the current pace of cases continues. Further restrictions might very well lead to economic contraction again, which is further exacerbating anxiety amongst investors.

Elections – The election is less than a week away, and for many it cannot come soon enough. We have said before and will reiterate that the market cares less about who wins and more about certainty. The market is hoping for a swift and clear victory. The political risk now is centered around the possibility of a contested election or lack of a clear winner. This surely poses the largest risk for markets at the moment.

Economic Updates & Tech Earnings

We received an updated read on GDP this week. U.S. GDP accelerated at a 33.1% annualized pace in the third quarter (Wow!). The previous quarterly record was 16.7% in the first quarter of 1950. While this number is massive, it was widely expected and came on the back of the worst GDP decline in history. Remember, this is a backward-looking number, and tells us about the rapid snapback of the economy in late spring and early summer. While this is a huge number, it still leaves growth at roughly 3.5% beneath its level at the end of 2019, and economists fear that growth has slowed significantly since then as the stimulus programs that provided much of the economic lift have expired and fiscal support is diminishing.

Earnings season is also upon us, and we just received updated earnings reports from big tech companies including Microsoft, Apple, Amazon, Google and more. These high growth companies have been the market leaders and they are priced for continued success and high growth in the future. While many of their Q3 earnings were very strong, the forward-looking guidance provided has been lower than what the market is hoping for. As an example, Amazon reported earnings last night, with a whopping 37% growth in year-over-year sales (which the market largely expected). However, the stock is down today, as their guidance for the fourth quarter was below what the market was looking for. The majority of these stock are trading down following their earnings reports this week, as they are priced to perfection and needed to really “wow” analysts to justify their current prices.

We hope everyone has an excellent weekend – enjoy the blue moon, be safe and enjoy an extra hour of sleep on Saturday night!

As always, please let us know if you have any question or concerns, or if we can provide assistance with any other financial planning matters including education, taxes, insurance or estate needs.