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Weekly Market Update for November 6, 2020

by Jim Ulland

The market loves divided government. In today’s case, the President, very probably, will be Biden, the House will stay Democrat, and the Senate probably will be Republican. A Republican Senate depends on at least one of the two incumbent Republican Senators in Georgia winning the runoff election January 5th. Divided government prevents anything both parties do not agree to from becoming law. The biggest worry the market had before the election was the long list of tax increases Biden had proposed. These will not pass a Republican Senate, so the market had a sigh of relief and stampeded higher. In addition, the market favors another stimulus bill which is more likely now than before the election. Perhaps reduced tensions will help fashion a compromise.

The economy continued to power forward. Unemployment filings persisted at last week’s reduced level. The number of workers already on unemployment declined by another 700,000. The unemployment rate fell from 7.9% to 6.9% reflecting strong job growth in October. Worker productivity also increased, an important factor in helping US exports to be competitive. The Fed did its bit by leaving interest rates at historically low levels and promising to keep them there.

The market fears of renewed lockdowns were overshadowed by the election and the market’s exuberance about divided government. Yet more lockdowns might come. England instituted a lock-down for a month. In the Midwest, Covid-19 hospitalizations have surged, and hospitals are straining to find available beds. The same is true in the Dakotas. This is not good news. However, vaccine trials expect to report results by year-end and perhaps sooner. Trial results will have a big impact on the economy and the market. Hopefully, businesses stressed by Covid-19 can survive until then.

Our fixed income strategy, IFI, was up about 1% for the week as investors put cash back to work in both stocks and fixed income. IFI also retained its top performance spot through October among ETFs and mutual funds with similar strategies. See disclaimers below in how we define the peer group. The current yield on this strategy is 4.76%. Through 10/31, it is up over 8% before fees. Trading profits and appreciation have helped these returns.

Remember how bad the market was last week? The Nasdaq was down -5.51%. This week the Nasdaq was up 9.01%. Remarkable. The SP 500 was down -5.64% last week and up +7.32% this week. Monday the SP 500 was +1.23%, Tuesday +1.78%, Wednesday +2.20%, Thursday +1.95%, Friday -0.03%.

Our equity strategies stayed tech heavy and benefited from the explosive performance in this sector. Our tactical repositioning to add some Chinese exposure and a new cannabis ETF worked well. However, one of our favorite companies, Alibaba, the Amazon of China, fell. The IPO for Ant Financial, a huge payment processing, lending, and investment firm, had its IPO delayed by regulators. Alibaba owns one third of Ant. We expect the IPO to be rescheduled within the next nine months.

Next week will produce final election figures from Georgia, Arizona, North Carolina, Pennsylvania, Nevada, and Alaska. There will be a lot of election-related litigation, which is unlikely to change the ultimate result of the Presidential election. Q3 earnings will continue, but most larger firms already have announced.

*Publicly Traded Peer Group Requirements: Minimum $150 million in ETF/Fund; Excludes low-duration funds; Excludes closed-end funds; Includes share class with largest AUMs; Excludes real estate preferred funds; Minimum 3-year track record

*The information contained in this commentary is not investment advice for any person. It is presented only for informational purposes to assist in explaining factors that may have had an impact in the past or may have an impact in the future on client portfolios or composites. All expressions of opinion reflect the judgment of the firm on this date and are subject to change. Included information has been obtained from sources considered reliable, but we do not guarantee that the foregoing materials are accurate or complete. Clients or prospective clients should contact Ulland Investment Advisors for individualized information prior to deciding to participate in any portfolio or making any investment decision. Ulland Investment Advisors does not provide tax advice. All clients/prospective clients are strongly urged to consult with their tax advisors regarding any potential investment. Performance quoted is past performance. Past performance is not indicative of future performance. There is always a possibility of loss. Current performance may be lower or higher than performance shown. Differences in performance versus the indices/funds may be attributable, in part, to differences in the asset make-up of the strategies vs. the indices/funds. Performance calculations are based on the reinvestment of dividends and gains unless these amounts were paid out to the client. Performance is subject to revision. See www.ullandinvestment.com for important strategy disclosures.