Will the uncertainty continue past the election?
Now, as we finish up October, uncertainties surrounding the elections, the economy and the coronavirus are growing. As a result, we expect heightened volatility between now and when election results are determined, which in itself is a big unknown. The markets dislike uncertainty; however, the results we feel should not hurt the markets drastically one way or the other .
In the economy, conflicting signs abound. After the disastrous virus induced 2nd Quarter GDP number (-31.4%), expectations are for a 25% rebound in the 3rd Quarter with the economy getting back to work. The key word, of course, is “sustainability.” Will the recovery continue into the 4th Quarter and beyond?
There have been ups and downs in the all-important jobs numbers. Non-farm payrolls were +661k in September, normally a great number, but a reading that was lower than the +800k estimate. The unemployment rate continues to drop; September came in a 7.9% down from 8.4% in August. But upon closer inspection, the labor participation rate is down, indicating permanent job losses are on the rise.
Again, the big concern is momentum. There have been pockets of strength: housing, tech/software, and retail are obvious examples. A prime of the tech boom has been Tesla. Of course there are pockets of weakness as well. Industries like travel, entertainment, food services, and hospitality have suffered at the hand of the coronavirus. While we spoke a few months ago of a “U” shaped economic recovery, there has been more talk lately of a “K” shape where different parts recover at different times and magnitudes. Overall, global economies have rebounded, but will that rebound continue?
The agreement on stimulus so far has been a big reason for concerns about momentum. The US House, for the second time, passed a new stimulus bill, but there is no agreement yet with the White House or Congressional Republicans. Negotiations are ongoing as we go to press. Federal Reserve Chairman Jerome Powell continues to advocate for additional fiscal stimulus as a key to maintaining the recovery started by the Fed’s swift monetary action.
All parties understand that further stimulus is needed. The 2.7% decline in personal income in August highlighted the likelihood of a drop in consumption without the legislation. Yet the delays continue, and recent announcements of big layoffs at Disney and the airlines came despite House Speaker Pelosi pleading that a deal was “imminent.”
Once the election ends one thing is for certain ongoing uncertainty will fade. We will have an understanding of who lead our country going forward. More progressive talks very well could begin regarding stimulus.