Market Monitor: October Update

Headlines and Highlights
  • Election points toward divided government, shrinks odds of tax hike and huge stimulus: Tuesday’s election left the White House race in limbo, with President Donald Trump still hoping to overtake Joe Biden’s Electoral College lead through late vote-counting, recounts or legal challenges. The Democrats’ inability to achieve a predicted “blue wave” – retaining control of the House but evidently failing to claim a majority in the Senate – will moderate any plans for tax increases, prompting a post-election stock market rally. It also is likely to result in a smaller fiscal stimulus package in Congress than many envisioned.
  • Red October for most markets: Equity and bond markets stumbled last month in the face of investor concerns about election uncertainty, further delay in a hoped-for fiscal stimulus package from Congress and a rise in COVID-19 cases worldwide. A bad final week for the S&P 500 produced the second consecutive monthly loss for the index. Smaller companies’ stocks and emerging-markets stocks were exceptions, with benchmarks for each category rising around 2%.
  • Economy rebounded at record pace in third quarter: U.S. gross domestic product surged at a 33.1% annualized rate from July through September, the Commerce Department reported. The comeback reflected summer reopenings from coronavirus lockdowns and roughly doubled the next-biggest increase on record but still did not fully offset the previous quarter’s plunge. With the recovery slowing, the Federal Reserve forecasts fourth-quarter GDP growing by about 3%.
Selected Market Returns

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Sources: Morningstar, Altair Advisers

Our Views
  • While the election may have been a disappointing split verdict for political parties, dashing Democrats’ hopes for a blue wave of empowerment and apparently ending Republicans’ hold on the White House, it was a positive outcome for markets. Investors and markets dislike tumult and tax hikes. The current outlook for gridlock – assuming Joe Biden is confirmed to have beaten Donald Trump – likely ensures no major policy changes ahead.
  • While the election results may delay and reduce the size of fiscal stimulus from Congress, a large package inevitably is still forthcoming. This aid should provide an important underpinning for the economy and markets into 2021.
  • We believe the Federal Reserve would step up to fill the gap if the congressional stalemate results in a lengthy delay in fiscal stimulus and economic conditions worsen. The Fed could increase asset purchases, impose yield curve control or further loosen the Main Street Lending Program to provide more generous aid to businesses.
  • The U.S. economy should avoid a double-dip recession given that a return to the widespread shutdown of last spring is unlikely even if the pandemic continues to worsen. U.S. bright spots keeping the recovery going include manufacturing, housing and better-than-expected third-quarter corporate earnings.
  • The progress of COVID-19 and efforts to vanquish it will continue to dictate the pace of the global economy until an effective vaccine is widely distributed. Based on reported progress from the many drugs in development, we view the likeliest scenario as mass distribution of a vaccine occurring by next summer.

The material shown is for informational purposes only. Forward-looking statements are subject to numerous assumptions, risks, and uncertainties, and actual results may differ materially from those anticipated in forward-looking statements. As a practical matter, no entity is able to accurately and consistently predict future market activities, and all investments are subject to the risk of loss. While efforts are made to ensure information contained herein is accurate, Altair Advisers LLC cannot guarantee the accuracy of all such information presented. Material contained in this publication should not be construed as accounting, legal, or tax advice