The global stock markets paused only slightly early in the third quarter of 2020 before continuing their upward trajectory. The Federal Reserve continues to flood the markets with liquidity in light of the fragile
economic backdrop. For the quarter, the Dow Jones Industrial average was up 8.2%, the S&P 500 was up 8.9% and the Nasdaq composite was up 11.2%. Despite the volatility in March and April, year-to-date the Dow is down barely one percent, the S&P 500 is up 5.5% and the Nasdaq is up a whopping 25.4%. Let’s not forget gold which for the quarter was up 5.8% and 23.9% year-to-date. The 30-year U.S Treasury ended the quarter at 1.45%, flat for the quarter but down from 2.39% at year-end 2019.

The largess from Congress has added trillions of dollars to the economy so far in 2020, but apparently not enough to stabilize it. The administration wants another one and one-half trillion dollars while many members of Congress want another two and a half trillion to ‘stabilize’ the economy and bail out the states who can’t stop the fiscal bleeding. Modern Monetary Theory is alive and well in the U.S. With the election just four weeks away, the question is: will the Democrats accommodate another stimulus bill or
will they wait until after the election to make concessions? Both sides need to address this added fiscal largess quickly, as business failures are rising and Covid 19 is not going to disappear in 2020. There are still tens of millions of people unemployed/underemployed and that number is likely to rise now that we have passed the October 1, 2020 date where employers who can’t pay their employees/carry them on furlough status, will now ‘reluctantly’ begin to terminate them. Recent examples include announcements from Walt Disney and two major airlines just in the past week. More companies are sure to follow.

Current polls are showing that 85% of Americans are not ready to fly; 75% of them are not ready to stay in a hotel nor go to the movies; 65% are not ready to eat inside a restaurant. It’s ugly out there and America’s main street needs help now.

Our continuing search for undervalued assets requires patience. Market volatility should ramp up further as we head into and through the elections and into year-end. As the Covid-19 epidemic takes its toll on humanity, we can expect continued dislocation in global markets. Global company earnings and global fixed income markets will continue to be volatile for the balance of 2020 and well into 2021. The ‘new normal’ is not here yet, although it would be nice for it to establish itself sometime soon. Until next quarter, stay healthy.