October 2020
Market Update
(all values as of 06.28.2024)

Stock Indices:

Dow Jones 39,118
S&P 500 5,460
Nasdaq 17,732

Bond Sector Yields:

2 Yr Treasury 4.71%
10 Yr Treasury 4.36%
10 Yr Municipal 2.86%
High Yield 7.58%

YTD Market Returns:

Dow Jones 3.79%
S&P 500 14.48%
Nasdaq 18.13%
MSCI-Europe 3.72%
MSCI-Pacific 3.05%
MSCI-Emg Mkt 6.11%
US Agg Bond -0.71%
US Corp Bond -0.49%
US Gov’t Bond -0.68%

Commodity Prices:

Gold 2,336
Silver 29.43
Oil (WTI) 81.46


Dollar / Euro 1.06
Dollar / Pound 1.26
Yen / Dollar 160.56
Canadian /Dollar 0.73

Good morning, Valued Clients!

I held back this quarter’s newsletter because of the election.  While we do not make investment choices based upon geopolitics, some things have been clarified that make me more confident to speak about the markets and the economy.  While the Presidential election remains undecided for at least a couple more days, President Trump has promised to take “the process” to the US Supreme Court.  This could take awhile…

One thing that looks certain based upon the market’s reaction since November 3rd.  Voters appear to prefer a divided government with it’s checks and balances.  Assuming the house and senate remain finally split by party, they are projecting status quo in the market.

Based upon that paradigm,  it is KCG’s job to allocate to optimize opportunities and reduce risk whee possible.  No big surprise…I recommend we maintain your target allocations which were built for optimal performance in the long run!  A prolonged delay or contested result could cause more  volatility, but historically, stocks have performed well over most time periods, regardless of which party controls the White House and Congress. KCG’s focus is on the long-term investment horizon with a disciplined investment approach and diversification. Besides, increased market volatility often provides us an opportunity to purchase attractive investments at lower prices.

That being said, one concern we have for taxable accounts is the potential change in capital gains in 2021.  Even if we aren’t absolutely sure who is President by December 31st, I recommend taking as many capital gains as possible in 2020, without forcing yourself into the next marginal tax bracket.  This will likely require a call to your CPA, but it will be worth it!  Consider the potential loss going forward, of another 20% of the value of your gains.  Really… calculate the math!

Also, with the possibility of a Biden administration on the horizon, the need to engage in meaningful estate tax planning is once again upon us. The estate tax exemption is rumored to be lowered to $5 million, down from $11 million.  It has even been rumored in the past, that the step up in capital gains and the estate tax exemption could be eliminated altogether.  I don’t know if that might really happen, but with the amount of debt that the Modern Monetary Policy (just printing more money) has created, don’t expect this to be the end of the story.  Either party will need to raise taxes eventually, and probably sooner rather than later.

Regardless of whether your candidate wins or loses,




Macro Overview

Equities paused from their upward trajectory in September, with technology stocks repelling from their highs. Despite the pullback in September, equities managed to end the third quarter with gains. The technology sector was the primary contributor to the S&P 500 Index, which was up 8.93% for the third quarter. Consumer discretionary and industrial stocks also performed well during the quarter, exemplifying some economic recovery characteristics.

Following an upward surge during this summer, September witnessed a tapering of equity momentum, leading to lower valuations. The three major equity indices, Dow Jones Industrial, S&P 500 Index, and the Nasdaq were off in September, but positive for the third quarter ending September 30th.

Uncertainty surrounding vaccine deployment and the election are expected to influence market momentum and investor confidence. Election results will help determine the direction of fiscal policy and social program funding.

A growing number of pharmaceutical companies, universities, and biotech firms are introducing and testing various forms of vaccines to combat COVID-19. According to the Regulatory Affairs Professional Society (RAPS), there are currently over 40 COVID-19 vaccines in trial phases worldwide.

California became the first state to require that all new autos sold be zero-emission by 2035. The executive order issued by the state’s governor is expected to reverberate throughout the country, possibly leading other states to follow suit, but most certainly leading to other states footing the bill. California has historically been the largest zero-emission auto market in the country, with Oregon and Washington states a distant second and third. California has historically been the largest zero-emission auto market in the country, with Oregon and Washington states a distant second and third.  In response to California’s executive order, the Environmental Protection Agency (EPA) argued that the mandate is impractical and possibly illegal under current Federal legislation. The EPA noted that California, like some other states, is already suffering from rolling blackouts, affecting residences and businesses statewide. The additional electric automobiles would impose additional strain on the electric grid further crippling its ability to efficiently distribute energy. (Sources: www.library.ca.gov, U.S. Department of Energy)

Comments by Fed Chairman Jerome Powell indicated that additional aid to small businesses and unemployed individuals was critical for economic expansion during the pandemic. The Fed Chair urged for the passage of a second stimulus package, which has been delayed due to a Congressional impasse.

Banks and finance companies have been imposing more stringent standards for consumer and business borrowers, as noted by the Fed’s Senior Loan Officer Survey. The survey identified reductions in credit card limits, as well as tougher qualifications for auto and home loans. (Sources: S&P, Bloomberg, Dow Jones, Nasdaq, Federal Reserve, World Bank, www.gov.ca.gov/2020/09/23/governor-newsom)

Rates Vacillate As Stimulus Efforts Unresolved – Fixed Income Overview

The Federal Reserve continues to purchase $120 billion of Treasury and mortgage agency bonds each month, expanding its balance sheet to over $7 trillion as of the end of September. The monumental buying is meant to facilitate bond market activity while maintaining a relatively low-rate environment.

Yields on government and corporate bonds vacillated in September as uncertainty surrounding additional stimulus efforts influenced rates. Analysts and economists expect higher long-term rates to result from the incremental debt issuance to pay for the next stimulus package. (Sources: U.S. Treasury, Federal Reserve, Bloomberg)


17% of all FHA-insured loans were delinquent in July of this year

What’s In Store For The Housing Market – Housing Market Update

Euphoric media reports about the housing market are starting to come into question, as the fragility of the housing market is gradually being exposed. The FHFA House Price Index revealed that housing prices nationwide rose a paltry 5.4% in the past year, with some regions seeing much slower growth.

The onset of the pandemic in March brought about a flurry of stimulus efforts meant to ease the financial burden for millions of Americans. Housing was a primary concern as the unemployment rate spiked and paychecks dwindled. In response, the Federal Housing Finance Administration (FHFA) announced a moratorium for both evictions and foreclosures through August 31, 2020. That moratorium has since been extended to the end of the year to allow homeowners additional time to sort out and catch up on their rent and mortgage payments.

Any federally backed loans, such as FHA-insured loans, have allowed homeowners to skip their mortgage payments by means of forbearance. According to the Mortgage Bankers Association, roughly 3.5 million home loans were in forbearance as of September 6th, representing 7.01% of all FHA-insured loans. In addition to homeowners in forbearance, there are those homeowners that are delinquent on the loans. It is expected that millions of homeowners on forbearance will become delinquent on those loans by the end of 2020, including many who have not made a payment since March of this year. Another government housing entity, the U.S. Department of Housing and Urban Development (HUD) tracks loans in delinquency via its Neighborhood Watch list. The data reported that 17% of all FHA-insured loans were delinquent in July of this year. The figure includes mortgages in forbearance as well as those not in forbearance.

Sources: Federal Housing Finance Administration, Mortgage Bankers Association, U.S. Department of Housing and Urban Development

current savings rate of 25.7% is nearly triple of the 60-year average

Less Choices Are Here To Stay – Consumer Behavior


In response to the COVID-19 pandemic, American consumer choices have changed in the realm of diet, food preparation, and lifestyle habits. The transition into at-home cooking as a means of financial saving and risk reduction has expanded through American society and is projected to leave both short-term and long-term effects on consumer choices.


In addition to consumer impact, retailers are also experiencing drastic changes in food choices as a result of the pandemic; grocery stores have begun to reduce food options while large corporate retailers have also transitioned into limited offerings. Consumer choice reductions by American retailers have resulted from stressed supply chains and market preferences leaning towards familiar brands.


The short-term effects of the pandemic on consumer choices across industries are projected to shift long-term as some companies plan to commit to fewer choices post pandemic. The desire for retailers to limit product variety stems from efforts to manage demand increase by simplifying. In-house dining is another realm of industry that has adjusted on the basis of the pandemic as more employees face job security threats. Restaurants have begun reducing menu options in order to mitigate extensive labor or supply costs that would often be needed in a growing and expanding food industry. The automotive industry is also feeling the effects of the pandemic and many automakers have begun the transition to limited supply and variety in hopes to salvage extraneous costs within the supply chain and decreased sales.


Uncertainty regarding the long-term effects of consumer choices remains, though some retailers have approached the transition with permanence and voiced limited desires to return to broadened product choices. The immediacy and simplicity created by fewer choices for both the retailers and consumers lends the debate towards the permanence or temporary incentives behind retailers’ consumer choice reductions long term.


Sources: U.S. Department of Agriculture; Economic Research Service