News & Insights

No one could have predicted the events of 9/11, the Great Financial Crisis, nor COVID-19’s dramatic effects on the economy and markets. Yet what is predictable is that such shocks can occur and do occur. Against such backdrop, it is helpful to think of the following from Mike Antonelli’s recent posting: ”So how am I thinking about 2021 and beyond? Here is my framework: - Continued bounce in employment and GDP growth from crisis low levels as we inch back towards normalcy. - Housing remains a considerable tailwind as Millennials trickle into home ownership over the next decade spurred by population migration and low rates. - Demographics are favorable right now, 80mm millennials are entering the prime of their lives. - The vaccine will finally reach critical mass sometime around Q2 setting the economy up for potential supernova of growth, 5-8% annually over the next few years, as people absolutely FLOOD out of their homes. I don’t want to get delivery for the next few years and I’d be happy seeing every single Baird branch in person. - The Fed is still easy and committed to such, do you realize how important that is? - The potential is there for a “roaring 20s,” I just hope its “roaring” for everyone (and that prohibition doesn’t come back).” Though Mike has an air of levity in all of his posts, a focus on such broad economic and market tailwinds has us continuing our view that clients should stay invested at or near their long-term strategic allocations with sufficient cash to meet short term obligations over the next year or so.

The third quarter allowed us all to breathe a sigh of relief. That said, until the virus is under control, challenges remain. Our friends and partners at Strategas summed it up this way: "The easy part may be over. Outside the theatre of war, few things have been as universally negative as the COVID-19 pandemic and its effect on the global economy. We avoided a depression thanks to a swift and aggressive policy response. It wasn’t surprising to see a rebound off such low lows as the economy reopened, and third-quarter GDP is expected to be up 25% from the previous quarter. But as our chief economist Don Rissmiller has suggested, the easy part of the recovery may be over. COVID-19 follows us into Q4. The pandemic persists as we approach the fourth quarter, and we think it’s fair to say that society as a whole is learning to live with the virus. But in the absence of additional income replacement provisions or durable drivers of organic growth, we should expect the slope of economic recovery to soften. And with the Fed’s recent acknowledgement that monetary policy is likely to remain easy for years to come, we are likely to see more disparity between the rise in stock prices and the rate of economic recovery.” It would be hard not to overlay the upcoming national elections as a further factor that could weigh on stocks. While the historical evidence suggests that the outcome of such elections has little correlation to the performance of the equity markets over any appreciable look back period, the ride may be rough in the short-term given this particular election and it being conducted during a pandemic. However, the volatility may present opportunity. It is against this backdrop that we continue to advise that clients stay at or near their long-term strategic allocations with an overweight to cash to meet near-term needs.

Baird PWM Market Strategist, Mike Antonelli, provides a detailed look at the historical data with respect to elections and what effect they may have on the markets, as well what to keep in mind when making investment decisions around election time.

A strong US large cap rally in technology focused companies erased much of the first quarter pain suffered in well diversified portfolios. Nonetheless, the lack of participation by more cyclical stocks and value oriented equities have left most client portfolios down year-to-date with longer lookback periods punctuating such divergence.

Over the last two weeks, there has been a notable uptick in the number of U.S. coronavirus cases, which is slowing or reversing the reopening in certain areas. While today is the last day of the second quarter, ultimately, the weaker economic data may start to bleed into 3Q depending on how long the halting of economic activity lasts.

Yesterday’s retail sales print came in stronger than expected at 17.7% M/M relative to a consensus estimate of 8.3%. Specifically, there was strength in Autos, Furniture, Clothing, and Food Services. The fiscal stimulus appears to be having a positive impact on consumption through this lens, coupled with economies across the country reopening.