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Weekly Market Update for October 9, 2020

by Jim Ulland

The week was dominated by the President’s apparent recovery from Covid-19 and the cat-with-nine-lives economic stimulus negotiations. The market was buoyed by the effectiveness of the treatment the President received. The treatment components are expected to be approved for “compassionate use” or “emergency use”, if needed, this month with production ramping quickly. Also expected soon will be the market-moving news on vaccines.

The drug treatment the President received had several components. The Regeneron treatment was antiviral and supported by only a small trial which had very good results. The Gilead antiviral, Remdesivir, has been in use for many weeks and reduces the length of hospital stays. In addition to these compounds was an anti-inflammatory steroid Dexamethasone, important to keep lungs functioning. A little zinc and vitamin D were added, although neither had been tested extensively for effectiveness against Covid. The market has been waiting for just such an effective “drug cocktail” so people will be less fearful about returning to more normal patterns of interaction, like getting on a plane. Reducing the fear response to Covid is necessary to get the economy back to normal.

The Fed waded into the very political stimulus discussion and said more stimulus is needed. Stimulus proposals on the amount of dollars, targeting only those in need, and the states to benefit are as much about politics as the economy. On Friday, the President raised the amount he was willing to put into a stimulus package to at least $1.8 trillion whereas Speaker Pelosi is asking $2.2T.

What does not make as much news, but is fundamental to the market, is the Federal Reserve’s position on interest rates. “Lower for longer” is the policy but it could be re-phrased as “low for a lot longer.” The Fed wants to keep rates low until 2023. After 2023, rates would depend on employment returning to pre-Covid levels and inflation reaching 2%. The September jobs report showed unemployment at 7.4% down from 14.7% in April, but still much higher than normal. Inflation for the last twelve months was a muted 1.3%. Low interest rates that stay relatively flat create an excellent environment for our fixed income strategy using preferred stock. Our target net yield to clients on our Intelligent Fixed Income strategy is 5%. The strategy is up 7% through 9/30.

With the good news from a Covid treatment, the President’s apparent recovery, hopes for another stimulus package, and continued low interest rates, it should not be a complete surprise that the market went up this week. The Nasdaq was up +4.56%. The S&P 500 was up +3.84%. Monday the S&P 500 was +1.80%, Tuesday -1.40%, Wednesday +1.74%, Thursday +0.80%, Friday +0.88%. Our equity strategies continued to out-perform too.

Corporate Q3 earnings start next week with JNJ, Citi Bank, JP Morgan, Bank of America, United Health, Goldman, Wells Fargo, and US Bank, among others. The major banks’ loan loss reserves will be an economic indicator to watch. Better than expected loan losses will indicate the strength of the economic recovery.

*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.