August 2020 Newsletter to Clients

Enjoy this month’s edition that features a market update, a historical note on market performance during election years and a retirement factoid.

Market Update:

As a further reminder that the stock market and the overall economy are two different things, large U.S. stock performance continues to amaze. While unemployment remains over 10% nationwide and small, independently-owned local businesses struggle, large publicly-traded companies have performed amazingly well since bottoming out near the end of March. In fact, since March 23 the S&P 500 index has risen almost 32% through the end of July. That meteoric rise pushed the index of large, U.S. companies to positive territory for the year.

Small, U.S. companies, however, as measured by the Russell 2000 index have dropped over 12% year-to-date through the end of July. Don’t confuse these publicly-traded companies with your neighborhood, locally-owned hardware store. These are small on the scale of stock-traded companies but still large enterprises. Similarly, stocks around the world are down more than 7% over the same period.

As interest rates have plummeted – the yield on the 10-year U.S. Treasury is currently .70% per year – bond prices have risen. (Bond prices and bond yields move in opposite directions) A significant reason for the low interest rate environment is due to actions taken by the Federal Reserve to preserve liquidity in the bond market and to increase the money supply in an effort to juice the economy. Low treasury yields, however, also tell us how investors feel about the economy. And extremely low yields, such as these, illustrate a pessimism toward the U.S. economy’s performance for the coming years.

History:

Fidelity has performed extensive research on U.S. stock market returns and their correlations to elections. Note they said correlation, not causation. For instance, since 1789 the market has generated an average annual return of 9.1% during presidential election years. Below are some interesting data points:

• Republican President: Average annual return = 8.6%
• Democratic President: Average annual return = 8.8%
• Republican Sweep: Average annual return = 8.6%
• Democratic Sweep: Average annual return = 8.2%
• Republican President and Divided Congress: Average annual return = 8.7%
• Democratic President and Divided Congress: Average annual return = 10.9%

Fun to look at but, as we always say, past performance does not guarantee future returns.

Retirement:

The Nationwide Retirement Institute recently revealed that 24% of respondents 56 and older said the Covid-19 pandemic has caused them to delay their retirement date. Additionally, 15% of pre-retirees said they now plan to put off taking Social Security benefits while 8% plan to claim their benefits earlier.

Thank you for your continuing confidence.