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November 2020
Market Update
(all values as of 06.30.2021)

Stock Indices:

Dow Jones 34,502
S&P 500 4,297
Nasdaq 14,503

Bond Sector Yields:

2 Yr Treasury 0.25%
10 Yr Treasury 1.45%
10 Yr Municipal 1.00%
High Yield 4.01%

YTD Market Returns:

Dow Jones 12.73%
S&P 500 14.41%
Nasdaq 12.54%
MSCI-EAFE 7.33%
MSCI-Europe 10.11%
MSCI-Pacific 2.68%
MSCI-Emg Mkt 6.46%
 
US Agg Bond -1.6%
US Corp Bond -1.27%
US Gov’t Bond -1.96%

Commodity Prices:

Gold 1,773
Silver 26.32
Oil (WTI) 73.77

Currencies:

Dollar / Euro 1.19
Dollar / Pound 1.38
Yen / Dollar 110.55
Dollar / Canadian 0.80
 

Macro Overview

In the wake of the recent U.S. national election, financial markets responded to updated expectations regarding fiscal policy, stimulus programs, and government debt. Some economists and market analysts project an eventual increase in tax rates, along with an expanding fiscal deficit.

A delay in passing a second stimulus bill through Congress put pressure on markets in October as legislators and the administration negotiated the proposed details of a potential bill. Many individuals and businesses anticipate a second wave of government stimulus spending in the form of cash payments, debt subsidization, and other fiscal benefits in order to meet expenses. In the absence of a new stimulus bill, a number of relief programs will expire at the end of the year.

A weakening U.S. dollar contributed to positive emerging market performance in October, as many emerging market currencies and equities fared better than U.S. equities and developed international equities. Countries throughout Europe announced new national lockdowns in order to stem a rapid resurgence of COVID-19 virus infection rates in Europe. Some policy analysts caution that similar restrictions and state imposed lockdowns may resurface in the United States.

Market dynamics shifted in October as anticipated election results were expected to offer a long-awaited secondary stimulus program, contributing to economic expansion across industries as a result of increased consumer and business spending. Fiscal policy initiatives are in focus as the Federal Reserve faces diminishing returns on additional expansionary monetary policy actions.

The national response to COVID-19 has effected massive shifts in consumer trends, as demand for retail shopping, dining out, and energy consumption have changed dramatically since the beginning of the year. Gasoline usage cratered as electricity usage simultaneously soared, the result of millions of workers transitioning to home based offices.

Sources: Federal Reserve, U.S. Energy Department, S&P

 
Millennials control just 4.6% of U.S. wealth

Uncertainty From Presidential Race Drove Volatility In October – Equity Overview

U.S. equity prices zigzagged throughout October as uncertainty regarding the election and a second stimulus package largely drove volatility. Growth, momentum, and quality factors of the S&P 500 Index led markets higher until October when a reverse occurred, shifting focus back to higher-beta, more-volatile stocks. Analysts believe that election results may eventually deliver a fiscal stimulus program that could promote economic expansion and drive unemployment lower.

Global developed market equities declined in October as earnings proved to be a concern among companies throughout various industries. In the U.S., the S&P 500 Index set an all-time record for the largest percentage dropped ever in a week leading up to a presidential election. (Sources: Bloomberg, Standard & Poors)

Election Results May Affect Rates – Fixed Income Update

Interest rates climbed slightly higher in October, driven by the anticipation of eventual inflation and growing federal debt levels. The yield on the 10-year Treasury bond rose from 0.69% in September to 0.88% at the end of October. The rise in yield was the largest increase since June.

Election results are expected to have a meaningful impact on the direction of interest rates over the next few years. New stimulus program funds may contribute to rising rates as newly-issued government debt is employed to pay for enormous potential benefit payments. (Sources: U.S. Treasury, Federal Reserve)

Millennials Lagging Relative To Their Parents & Grandparents – Demographics

The Federal Reserve tracks and compiles data on individuals segmented by generational designations including Baby Boomers, the Silent Generation, Gen X, and Millennials. The resulting data reveals that the millennial generation, born between 1981 to 1996, is lagging other generations in terms of financial position. Fed data for the four generations indicates that millennials have accumulated nearly as much debt as Boomers and use the most consumer credit of all the generational groups. Millennials control just 4.6% of U.S. wealth, while they represent the largest segment of the U.S. workforce. Financial discipline and behaviors driving saving and investing are areas in which millennials may need to improve as a group in order to rectify this trend.

Sources: Federal Reserve Bank of St. Louis: Survey of Consumer Finances & Financial Accounts

 
Demand for gasoline dropped to the lowest levels since 1990

Shifting Energy Trends – Consumer Energy Usage

COVID-19 significantly altered the way we consume energy, and decades of conventional wisdom regarding consumer behavior was been upended this year. For the first time since 1960, U.S. consumers have spent more on electricity than on gasoline, representing a dramatic shift in energy usage.

The shift is largely attributable to an enormous drop in driving, as millions of U.S. workers started working from home. Demand for gasoline dropped to the lowest levels since 1990, transferring demand to electricity, which has seen the largest usage spike in 20 years. The increased use of laptops, printers and other home office equipment significantly elevated home electricity consumption. Any additional stay-at-home mandates may further affect gasoline and electricity consumption as millions of workers adjust to working from home.

Sources: U.S. Energy Information Administration

How a Lower Credit Limit Affects Your Credit Score – Personal Finance

Millions of Americans had their credit scores adversely affected this year, as banks and other financial institutions sought to mitigate risk by reducing lines of credit and credit card charge limits. The result was a reduction in scores for millions of Americans even while many continue to manage their credit and payments successfully.

Lenders responded to the pandemic-related economic recession by decreasing credit limits on consumer accounts in order to mitigate risk of exposure to consumer credit defaults and avoid financial distress. Since many credit accounts carry a balance, the credit utilization ratio rose as the credit limit was reduced. This ratio is a critical component used by the three major credit reporting firms in determining a consumer’s credit score. As ratios rise due to a credit limit reduction, credit scores tend to drop. The higher the credit utilization ratio a consumer has, the greater the perceived risk for lenders.

Consumers are often surprised by lower credit scores, since lenders are not obligated to warn customers about a pending credit limit reduction, and may only do so once the reduction has been implemented.

In order to try to curtail the effects of a higher credit utilization ratio, consumers may contact their credit lenders directly and request a reinstatement of their prior credit limit. Additionally, simply paying down an existing balance may prevent a potential credit score drop.

Source: Federal Reserve

 
new visas and permits fell by 46% in the half of 2020

International Migration Plummets – International Dynamics

International migration plunged over the past year as the pandemic hindered mobility for millions of migrant workers worldwide. The Organization for Economic Cooperation and Development (OECD) tracks the issuance of new visas and permits by the organization’s 37 member countries, including the United States. The OECD found that new visas and permits fell by 46% in the first half of 2020 compared year-over-year to the first half of 2019. Prolonged travel restrictions, combined with remote working requirements, made it difficult for migrant workers to transition from country to country for high-demand jobs.

Large populations of immigrant workers are typically characteristic of industrialized countries with ample jobs and industries. In addition to the United States, several European countries host relatively high percentages of immigrant worker populations. According to the OECD, immigrants currently account for approximately 13.6% of of the U.S. population. (Source: OECD)

The Reemergence of Stagflation – Economic Trends

Recent government data that tracks inflation, known as the Consumer Price Index (CPI), has risen steadily since the onset of the pandemic in March. Economists believe that the rise can be interpreted as either a rebounding economy or as a general rise in overall prices. A concern is that the current economic environment shows possible signs of slow expansion and stagnant employment growth. Simultaneous inflationary increases in the prices for food, clothes, and other essentials would potentially create a stagflation scenario. Stagflation can diminish a person’s real income, as the cost of essential services and goods rise while little or no wage increases occur. (Source: BEA)