The October Surprise

The October Surprise

We are just four days into October, and this month is shaping up to be one of the most surprising, exciting, and shocking months of the year, and that is really saying something! With the Presidential debates underway, with POTUS and FLOTUS contracting Covid-19, with the election less than a month away, we will try to offer our rational opinion on what these events will mean for the markets and your portfolio.

All of these events are happening in real time, and they are occurring right before the reporting of third quarter corporate earnings. As we monitor the political and coronavirus news stories, we will focus our attention on the markets and our portfolios.

Unemployment for September came in at 7.9%, a decline from August’s 8.4% rate. More than 661,000 jobs were added in September. The Federal Reserve remains very accommodating in the form of pumping money into the economy. At boodle, we view these events as positive for investors, and we will continue to monitor the Fed and the economy.

Revisions to the GDP (Gross Domestic Product) are coming into focus and they are showing some interesting data. The new forecast is showing a -3% to -4% GDP growth for 2020. However, as we read further, the GDP numbers are showing positive GDP numbers of 3.6% - 4.7% in 2021 and 2.5% - 3.3% in 2022. These numbers are subject to revisions, so we will keep an eye out for any adjustments.

October kicks off third quarter (Q3) corporate earnings, and this is called earnings season. We see 4 earnings seasons per year, and the next one (Q4) doesn’t start until January 2021. Earnings season is particularly important because publicly traded companies must declare how much money they made in the previous quarter and it is our belief and opinion that earnings drive stock prices.

We measure the health of the market by what an index, such as the S&P 500 is returning to shareholders. As of 10/4/2020 the S&P 500 is up by 3.64% year to date. That year to date gain may seem paltry to some, but when you take into account the 30% drop we saw in Feb-Mar, then you can appreciate better the resilience of the market and the courage of investors who hung in through the tough times. That’s a lesson for all of us to learn. Next month, we will talk about the election. Until then, stay safe and stay engaged, and do not let October surprise you!