Gill Capital Partners Oct Update – 2020 Not Over Yet

As we move into the final quarter of 2020, many wish they could hit the fast forward button to 2021. We are saddened this week by the passing of the legendary guitarist Eddie Van Halen, who will be remembered as the most influential guitarist of his generation. For much of 2020, it has felt as if we are living a bad sci-fi movie with twists and turns that only Hollywood writers could make up. And with three months left, a presidential election on tap, an ongoing global pandemic, and calamitous environmental disasters circling, you can almost feel 2020 embrace it’s inner John Belushi (John “Bluto Blutarski) from the late 70’s classic comedy Animal House. No, 2020 is not over yet; there are still plenty of fireworks to come, so strap in and hold on…

Market Update – Many equity markets put in new all-time highs on September 2nd and then proceeded to correct roughly 10% through the end of the month. October has brought with it a move higher, along with news of coronavirus outbreaks at the White House, stimulus negotiations, and updated election polling.

Election – With the election approximately 3 weeks away and the first round of debates under our belts, the political and advertising machines on both sides are in full press. A new Wall Street Journal/NBC News poll following the recent debate shows Joe Biden with a 14-point lead among registered voters, which compares to an 8-point advantage last month. Many are discounting the effectiveness of these polls following the 2016 election; however, the polling proved to be more accurate in the 2018 mid-term election. With the global pandemic re-accelerating in many parts of the country, voters are on edge about how it will impact the election. A recent Pew Research poll showed that 67% of Americans say it is very or somewhat likely that the coronavirus outbreak will significantly disrupt people’s ability to vote this year. Very few seem to have an appetite for a long-contested election, but the risk of such an outcome certainly seems higher this year than in elections past.  

Our View – We are seeing an increased probability of a “blue wave;” that is, a significant victory for democrats. Biden is building a considerable lead in the polls and it appears that there is a strong possibility that the senate will shift in the Democrats’ favor as well. Interestingly, the markets seem to be acknowledging that a “blue wave” may not be such a bad thing as was once thought. It would give investors more certainty with respect to policy, specifically fiscal policy, as Democrats will surely look to quickly pass significant stimulus.

While elections are important, and certainly top of mind right now, we continue to emphasize that election outcomes are not binary. Markets can and have performed well in many different political environments. For those of you who were able to attend our recent Speaker Series webinar with John Tousley from Goldman Sachs, he aptly pointed out that the policy regime will likely remain similar regardless of who wins the election. Both parties will focus on recovery by way of fiscal stimulus and government spending until the virus is no longer an issue and the economy has returned to a more normal state. John Tousley shared the following chart, which shows average market performance in election years  The key data point in this chart is the far-right side shaded in yellow, which shows similar market rallies following elections regardless of whether an incumbent president wins or loses. He emphasized that investors should not position their portfolios based upon their fears or expectations around elections

More Stimulus Coming?

Markets have been whipsawed in recent days by the on-again, off-again negotiations over additional stimulus, reacting to every tweet and interview hinting at progress or lack thereof. Congress and the White House have been negotiating for months on a second stimulus package that would send much needed relief to the airline industry and state and local governments, along with an expansion to the PPP loan program and a second round of direct stimulus in the form of check to some taxpayers. The sticking points have been form and substance, with Democrats pushing for a much larger, more comprehensive bill and Republicans hoping for a smaller, more targeted stimulus plan.

Our View – At this point, a significant, comprehensive bill has been delayed until after the election. The White House is hoping to pass a targeted airline relief package prior to the election, but Democrats have signaled that they are not likely to take a piece-meal approach and seem content waiting until after the election to pass a more significant stimulus package, particularly with recent polling in their favor. Markets have, interestingly, found positive momentum in this backdrop upon the realization that a much larger stimulus package could be good for equities.

The next couple of weeks are sure to be interesting and full of noise. We urge everyone to get out and vote. It may be a good idea to put on some Van Halen to drown out the noise…

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.