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Road to Nowhere…….?

Recently I ordered a product online for curbside pickup. Thinking it could be a fun adventure for Francis and me, I loaded him in the car and started our drive to the store. This store just happened to be about forty-five minutes from the house so while driving Francis took a bit of a nap. As I was picking up the package, Francis woke up and instantly became excited as he wanted to see what was in the package. I told him we had to wait until we got home and then we can put it together. As we started our trek back home, we unfortunately found out that one of the freeways we needed to take had been closed due to an accident causing us to have to take a different freeway. After enduring the detour that caused an extra thirty minutes to our trip, as we drove into the driveway, I noticed Francis seemed sad. I asked him what was wrong, and he said, “Daddy we’ve driven so far and we are back at the house, we didn’t go anywhere.”

I thought this story was important because we believe we have the potential, over the next number of weeks, for the equity markets to not go anywhere. The equity markets could go up and the equity markets could go down, however, due to numerous things going on in the world, the equity markets may end up not going anywhere. Said another way, the equity markets may go sideways.

As investors, we understand when equity markets go up and we understand when equity markets go down. Rather, it is the sideways equity markets which can be the most difficult to understand. Using a very recent time, if someone went to bed this past New Year’s Eve and saw the level of the S&P 500, then woke up yesterday, they would see the index has gained approximately 0.22%. By only looking at the return year to date, an investor would not have seen the highs in February, lows of March, and highs of earlier this month. We believe the upcoming weeks could cause the market to travel sideways due to a few different reasons:

  • Political uncertainty and it is only been exacerbated over the last week do the death of Justice Ruth Bader Ginsburg. The White House, House of Representatives, and Senate do not seem to be anywhere near a deal as it relates to any additional stimulus plans. Additionally, the uncertainty as it relates to the election will continue.
  • COVID-19 and increasing numbers in the United States and a potential second wave in Europe. We are starting to see higher infection numbers in Europe and most recently, England has spoken about a potential need for a second closure.
  • The US and China continue to have tension, most recently with the app TikTok.
  • Finally, there is a worry about valuations in the technology sector and if they are too high.

Due to the above factors, we could see a sideways equity market over the coming weeks. This does not necessarily mean we could not experience intraday or intra-week rallies and declines; we just believe that there could be continued sideways movement.

As a reminder, we will be hosting two webinars in October entitled “Election 2020: The Economy, Markets and You” on October 8 and October 29. Please look for an email Tuesday with additional details and to RSVP.

Enjoy the first weekend of Fall.