Economic and Market Overview 10.6.20

by Kevin and Kyle Taylor

DIGITAL COMMUNCATION SURVEY

As most of you know, a few weeks ago we emailed a survey asking for feedback on our digital communications. We received a great deal of response and appreciate the comments, suggestions and general overview of what you want to see from us. First, in terms of timing, it was somewhat surprising to us that you overwhelmingly prefer monthly outreach as opposed to more frequent emails and posts. In terms of content, the feedback was also heavily weighted toward the market and economy, but a measurable contingent would like to continue to see coverage on planning ideas.

Because we want to give you the information you want when you want it, we have decided to move from weekly communications covering a broad range of topics to a monthly commentary with an overview of the markets and the economy. We will lean heavily on the monthly updates provided by Commonwealth’s CIO, Brad McMillan, as he tends to cover the pertinent data and gives good perspective on what the information means for our clients. We will occasionally provide our own commentary which may include information from other sources we review each week when it has greater relevance to you.

For those who enjoy coverage of current planning strategies, we will intersperse various articles and overviews in between the monthly economic reports. These will probably occur quarterly depending upon the circumstances and relevance. For instance, if we have a change in power after the election generating sweeping tax reform you can expect us to provide general strategic concepts to minimize the impact of the laws will have when enacted.

Thank you again for your extremely valuable input and here is this week’s economic and market overview:

THE ECONOMY

There’s good news and bad news about the U. S. economy these days. The good news is that we’re continuing to see some signs of recovery from the pandemic crisis. The bad news is that it’s going to take a lot longer than we thought to get anywhere near normal. Hopes for a so-called “V-shape recovery” don’t seem to be in the cards.

Here’s evidence from last week’s data:

GDP – the government’s third estimate of second quarter GDP showed a decline of -31.4%, up slightly from the earlier estimates. Consumer spending, which makes up the bulk of consumption, was -24.01%, the largest decline on record. Unless we get another stimulus package, which looks more and more unlikely before the election, the third quarter won’t be much better. Fixed investment (-5.27%) and inventories (-3.50%) added to the decline.

Employment – Friday’s jobs report was definitely a disappointment. The increase in payrolls of 661,000 was well below the consensus estimates of 850,000. Services employment (+568,000) made up the bulk of the gains. In reality, we’re not creating many new jobs; we’re just recovering some of the old jobs that were lost when the virus struck in March. Still, the nation’s basic unemployment rate dipped to 7.9% from 8.4% the previous month.

Just as worrisome, however, is the prospect of losing a lot of existing jobs as the effects of the virus persist. NFL quarterbacks and the nation’s President draw the media attention, but the real concern comes from firms like Disney and the airlines, which began laying off tens of thousands of employees as of October 1.

One positive note for the future was legislation that funded the operations of the federal government into the month of December. That legislation did not include any stimulus program, however.

THE MARKETS

Despite the gloom and doom mentioned above, the markets still seem to have a positive outlook on the future. All three of the major indicators were up for the week, and only the Dow Industrials remain in negative territory for the year. How long those conditions will last is anybody’s guess.

There are just too many uncertainties facing the markets for anyone to project very far into the future. These include: (1) the overall economy, (2) the virus pandemic, (3) outcome of the elections, and (4) whether and when we might have a vaccine available. Even after we get a vaccine, it will likely be quite a while before it really has an effect on the U. S. population.

In the meantime, Treasury interest rates went up and mortgage rates went down; an increasingly typical pattern. Another strong market is that for housing. Home builders can’t keep up with demand, and they regularly complain about the shortage of labor and high material prices.

We’ll soon be getting third quarter earnings reports, and they may contain some surprises. One might be the area of banking and financial services, which have been pretty bleak for the last couple of years. I’m looking at the yield spread between short-term and long-term rates. At the beginning of the year, the Treasury spread was only 0.85%, a very small net interest margin. At Friday’s close, that figure had expanded to 1.40%. Another factor contributing to banks’ future profitability is the generous loan loss allowance that they have provided for themselves. If actual loan losses are more modest than projected, those allowances will drop directly to the bottom line, boosting earnings.

Have a terrific week!

Kevin Taylor is a financial advisor located at Vaughn Wealth 1127 Edgewater Drive, Orlando, FL 32804. He offers securities and advisory services as a Registered Representative and Investment Adviser Representative of Commonwealth Financial Network^®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 407-872-3888 or at Kevin@vaughnwealth.com.

Kyle Taylor is a financial advisor located at Vaughn Wealth 1127 Edgewater Drive, Orlando, FL 32804. He offers securities and advisory services as a Registered Representative and Investment Adviser Representative of Commonwealth Financial Network^®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 407-872-3888 or at Kyle@vaughnwealth.com.

This communication strictly intended for individuals residing in the states of : AL,CA,CO,FL,GA,HI,KS,MO,NC,NY,OH,OR,SC,VA. No offers may be made or accepted from any resident outside these states due to various state regulations and registration requirements regarding investment products and services. Investments are not FDIC- or NCUA-insured, are not guaranteed by a bank/financial institution, and are subject to risks, including possible loss of the principal invested. Securities and advisory services offered through Commonwealth Financial Network, ®Member FINRA/SIPC, a Registered Investment Adviser. Fixed insurance products and services offered through CES Insurance Agency or Vaughn Wealth.