Monthly Market Update:
Recap of August 2020
August 2020 showed us that investors are not phased with the continuous changes with the virus, social unrest and the upcoming election. The housing market is booming, unemployment numbers have decreased and the stock market has hit record highs.
For the August numbers, the stock market was positive in many of the indexes we monitor and invest in. The S&P 500 was +7.19%, Dow Jones Industrial Average +7.92%, Nasdaq +9.70%, MSCI EAFE +5.14%, MSCI Emerging Markets +2.21%, Barclays US Aggregate Bond -0.81%, Barclays US Corporate High Yield +0.95% and Barclays Municipal +0.47%.
Unemployment fell to 10.2% based on the August unemployment report with a total of 1.8 million jobs added. For the housing market, it saw growth of 22.6% in housing starts, existing home sales increased 24.7%, 5 million building permits were issued and a month over month increase of 5.9% for pending home sales.
If you watch the news, are on social media, or anything to keep you connected, you are probably wondering how the market is continuing to rise with all that is going on. As I have previously mentioned, the market is forward looking and investors are optimistic about what is to come. At this time, large corporations are driving the market beating analyst expectations, while small businesses are not all faring as well. Though I do like to look at the glass half full, I want to list 3 possibilities that could result in a market pull back.
1. The election. November will be here before we know it and the concerns around the difference in proposed fiscal policies and the overall political climate could lead to a market pull back.
2. Job losses. Though jobs have been added, we are still at a high unemployment rate compared to the 3.5% prior to the pandemic. The current unemployment rate along with the fact that many small businesses and hospitality services continue to take a big hit, we could potentially see the unemployment rate stabilize or only slightly improve in the upcoming months. With millions still unemployed, the concerns of less money going back into the economy due to unemployment and the possibility of millions defaulting on loans could lead to a pullback.
3. Government policy changes and a fed fund rate increase. Currently, the government and federal reserve are trying to prevent a long-term recession. They have provided the stimulus, increased unemployment, reduced the fed fund rate to 0% along with many other strategies. If the feds raise the rate, interest rates could increase creating a higher cost for businesses to borrow and this could slow the housing market. This is not in the plans for the feds based on their statements. It looks as though they are still willing to do anything and everything to prevent a long-term recession, though there is always the possibility of a change in plans, especially if there is an unexpected rapid increase in inflation.
I want to provide you this information, not to concern you, but to keep you educated on the “what ifs”. That said, please remember that your investments should always be viewed from a long-term perspective and not a short-term perspective. I know many of you receive monthly draws during retirement and your portfolios are aligned to take that into consideration and all client portfolios are aligned based on your financial goals.
The only way to have the possibility of long-term growth is to stay in the market and avoid the urge to let your emotions take control. As we have seen this year, the market can be unpredictable and the key is to have an investment plan and stick to it. I thank you for trusting RightPlan Financial as we continue through the wild year of 2020. Please stay safe and as always, reach out with any questions.