In this week’s blog, CCM’s Chief Investment Officer, Andy Kaufman, shares his thoughts on the third quarter of 2020, and his outlook for the final quarter of this year.
“It is my belief that the markets tend to focus on one thing at a time. This focus can shift daily, but when allocating capital, it is critical to get a pulse of the main areas of concentration for the current market and for what lies ahead. While the market has been heavily focused on COVID-19 and its economic fallout for much of this year, the third quarter was no different. The news was generally constructive for the economy as a number of critical financial indicators started to rebound in the third quarter, albeit from historic lows.1 Employment steadily increased, consumer spending picked up, and maybe most importantly, consumer confidence showed consistently healthy readings. This improvement is not a surprise given the massive amounts of monetary and fiscal stimulus. It is possible we may experience financial consequences from these stimulus measures down the road, but I believe without them, the economy would be in far worse condition and a full recovery would take much longer to achieve.
How the rest of the year plays out and its impact to the economy looms largely on one issue: the upcoming presidential election. With this in mind, let us take a look at what we know. First, the Republican Party is not the GOP of yore. Today’s Republicans no longer resemble the staunch fiscal conservatives of years past. Republicans have approved massive stimulus and spending bills and they hope to pass further stimulus along with substantial infrastructure spending. Second, for the Democrats, this is old hat, so their biggest area of disagreement is not whether they increase spending, but by how much. The stimulus that was passed as part of the CARES Act, which included $1,200 direct stimulus checks and an extra $600 weekly unemployment compensation, proved to be one of the most successful tools used to keep the economy afloat.2 Default and delinquency data for autos, consumer credit, homeownership, and rental housing shows that the extra stimulus helped keep these levels stable. However, when the additional unemployment benefits ran out on July 31, the data began to show signs of stress. The clock is running on both sides of the aisle to agree on another stimulus package before the election and, more importantly, before we could see worse economic consequences. Lastly, while worries over the outcome of the election may cause short-term market volatility, I do not anticipate any severe outcomes irrespective of who wins, as it does not look probable that one political party will control the presidency and both sides of congress.
We will certainly be paying close attention to who wins the election, but more importantly, we will look at what the future stimulus will look like and how it will impact the economy. The levels of stimulus that have proven successful are clear, and anything short of these numbers without a vaccine will likely be disappointing to the market and disappointing to consumers who greatly need help.”