The week leading up the the 2020 presidential election introduced new market volatility into US equity markets. With the possibility of a contested election; the reemergence of COVID-19; and lower earnings forecast; we believe heightened volatility is going to be with us in the short-term. Hit the play button and listen to Evan Shorten and Elean Mendoza discuss their thoughts.
Introduction:
Welcome to the Paragon Financial Partners podcast, where we discuss the markets, our strategies and how to live better today while planning for tomorrow.
Elean
Hello and welcome to the Paragon Podcast. I’m Elean Mendoza and I’m here with Evan Shorten, the firm’s founder and principal.
Evan
Hello everyone. First, I want to say that I hope you are all staying healthy. Second, I want to thank everyone for tuning into the podcast. Lastly, before we get started, I encourage you to subscribe to our podcast on the Apple Podcasts App, the Stitcher Radio app, or by subscribing to our email list located on the home page of our website at www.paragonfinancialpartners.com.
Elean
Ok, so last week we saw increased volatility in the stock market starting on Monday October 26th and the Dow Jones taking over a 3% dip on Thursday alone, October 28th. It’s our belief that with upcoming election results and a couple other challenges, we’re going to see a lot more volatility over the next few months. Essentially, until the presidential race is over. So Evan, can you go a bit deeper into what may increase volatility in the markets?
Evan
The election is going to be a big one- no doubt. I know Election Day is tomorrow, November 3, but that just means, tomorrow is the last day to cast your vote and mail in ballots. Essentially, we’re going to be on hold waiting for all the mail-in votes to be counted and with every day that passes, each candidate is probably going to declare victory while the other candidate is going to denounce it. It may be chaotic with candidates calling for ballot recounts and the like.
Ultimately, there is going to be a lot of uncertainty surrounding the outcome of the election, and one thing that makes markets nervous is uncertainty. For the most part, US equity markets favor a Trump win over Biden due to their respective tax and regulation policies. It’s not unrealistic to expect the market to behave negatively on days when Biden might look like the leading candidate.
The other issue, or the elephant in the room if you will, is COVD-19. If cases continue to rise and individual states move to close down their economies again, equity markets are not going to respond well. It’s not unrealistic to think markets could fall even lower than they did during the initial shutdown – especially since we no longer have as strong of an economy as we did back in March. Now with that said, there may not even be a significant second wave of COVID-19, and of course there is always the possibility of a vaccine.
Elean
Ok, now speaking of a vaccine, back in June we posted a short blog post about making investment decisions on the possibility of a vaccine. We highly encourage you to visit our Insights blog at paragonfinancialpartners.com/insights to read the blog post, but this is also a good time to briefly review the realistic possibility of a vaccine and what it could mean for investors.
Click here to read our post, Be Careful When Investing in a Covid-19 Cure.
Evan
Yes, one of the main points that we mentioned in that blog post is that vaccines take years, often decades to be created and approved for medical use. As an example, the first Ebola vaccine was patented by the Public Health Agency of Canada back in 2003 but that vaccine wasn’t approved for medical use in both the EU and the US until the end of last year – 2019. Even if a vaccine were to be discovered, it may not make much of a difference in the short-term. For example, a vaccine being discovered may not actually mean it gains regulatory approval for medical use. Or, let’s say a vaccine is discovered and expedited along the development process in order to distribute within the next few months; plenty of people have raised skepticism about taking a newly developed vaccine.
Elean
And to illustrate that point, a Gallup survey on Covid-19 conducted from July 20-August 2nd of earlier this year showed that only 1/3 of American would be willing to take a new vaccine if approved by the FDA and provided at no cost. A month later, the Pew Research Center conducted their own survey from September 8 to September 13 and found that 49% of American would not take a newly developed vaccine for COVID-19.
Evan
So with that said, it’s important to not make any investment decisions based on vaccine headlines as often times vaccine related headlines create artificial market swings and then quickly markets correct back once reality sets in.
Now, one last item I want to mention with respects to increased volatility is earnings season. Airlines, oil majors, and especially retail have been hit hard; and while there has been a small recovery in the last few months, it hasn’t been enough to lift the economy. As an example, Amazon who reported a solid 3rd quarter earnings has given negative forward guidance saying it’s 4th quarter profit is expected to fall due to COVID-19 related expenses.
So to sum things up, we have a feeling that the next few months are probably going to bring increased volatility, at least until the presidential race comes to a close. Markets will most like react positively and negatively depending on which candidate is the winner of the day, the risk of COVID reemerging, and possibly a declining earnings season.
Now with that all that said, we’re just one stimulus package away from providing temporary relief in the economy, however, we most likely will not see a stimulus package until the presidential race has been decided.
Elean
Ok, so with increased volatility, it’s now very important to review your current investment allocation. Make sure you’re not taking on more risk than you should be in your current stage of life. Meaning:
-If you’re retired you should be significantly more conservative with your investments focused more towards income.
-If you’re transitioning towards retirement, it’s important you begin transitioning your allocation from asset growth to income and asset preservation.
-If you’re in the middle of your career or just starting outing, it’s important to build and maintain an emergency savings account with a minimum of 6 months of living expenses.
And finally, don’t pay attention to the headlines. Sadly, journalism today is focused on attention grabbing click bate headlines. Stay calm and stick to your financial plan.
Evan
Yes, and if at any point you feel you need to review your financial plan or it no longer applies to your current stage in life, don’t hesitate to reach out.
Elean
Ok, great. With that, I hope you enjoyed tuning into the podcast and found it informative. To stay up to date, you can subscribe on the Apple podcasts app, Stitcher radio app, or by signing up to our email list located on our homepage at paragonfinancialpartners.com.
Thank you for tuning in and please stay safe.
