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Weekly Market Update for October 2, 2020

by Jim Ulland

The Presidential election is dominating the news.  The White House announced that the President and First Lady both had contracted Covid-19.  This capped an unsettling week, exactly the environment the market hates.  The Presidential Debate was anything but Presidential.  Let’s hope the next one can focus on the issues and policies of each, that is, if there is a next debate. The additional stimulus package was stalled, and the House adjourned, which dimmed prospects for agreement. The Fed says the economy needs one more shot of stimulus and a renewal of the Payroll Protection Plan to avoid large layoffs from the airlines and others. There was a hint of agreement to do something for the airlines separate from the larger package. New jobs created in September, while good, were fewer than forecast. The economic momentum has slowed but still is somewhat better than expected. The positive impact of the stimulus packages has about run out. States are allowing more businesses to reopen, but barely enough to keep the recovery going. Housing has been a bright spot with historically low mortgage rates.

Fixed income in general, and our preferred stock strategy specifically, benefit from low and flat interest rates.  Nat Beebe, who runs our fixed income strategy Intelligent Fixed Income (IFI), retained the number one performance spot on a 3yr, 2yr, and 1yr basis among publicly traded* (ETFs and mutual funds) fixed income strategies that predominantly use preferreds.  In fact, IFI is the only strategy we can find among the peer group that was positive in September. Year-to-date returns are over 7%.

Our equity strategies too have substantially out-performed the comparative NYSE index.  We continue to focus on technology, communications, health care, and special situations.

Covid-19 news was over-shadowed by the President’s infection. However, the four or five major trials underway keep marching toward a vaccine.  The President’s medical team chose a Regeneron treatment, so that stock may bounce Monday. Hospitalizations declined again, according to the daily tracking from the U of M Carlson School.  In all regions of the country, a substantial majority of the states had declining hospitalizations last week.  The only region where most of the states showed an increase was in the Northeast.  The news seems to focus on the number of new Covid cases.  These are mostly occurring among the young where the impact is often quite manageable.  We think the focus should be hospitalizations to get severity trends.  Very recently, Minnesota has experienced an uptick in daily admissions, a trend we are watching.

Even with the President’s Covid infection, the markets had a good week. (Unfortunately, the President was hospitalized just after the market closed).  The Nasdaq was up 1.48%.  The S&P 500 was up 1.52%. Volatility moderated except on Monday and Friday. Monday the S&P 500 was +1.61%, Tuesday -0.48%, Wednesday +0.83%, Thursday +0.53%, Friday -0.96%.

We expect volatility to stay high.  Besides politics and the President’s health, corporate Q3 earnings will be the next market mover.  Earnings will start to be released in about ten days.  If earnings continue to recover, expect more jobs to follow.

*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.