It’s hard to believe that just four years ago, we were having strikingly similar conversations about the election and its potential effects on markets and retirement plans. Comparable to 2016, the conversation remains the same—do not allow political uncertainties to run your investments. Historically, markets have managed appropriately over the long term, no matter the political party in office. We must not allow outside influences and emotions to cloud our investment discipline.
In recent days, the United States has eclipsed its highest daily infection totals for COVID-19. This resulted in adverse effects on the markets, and understandably so. As we head into a winter filled with grim predictions and further uncertainty, it is important to note that medicine has advanced considerably throughout the year. Every day that passes becomes a day closer to a vaccine, therapeutics, and ultimately some form of a solution. As a society, we’ve learned to cope with the reality of social distancing, wearing masks, and taking extra precautions. Many businesses have learned to manage the hand they have been dealt. Some have even been able to accelerate growth because of it. We are far from out of the woods, but I feel confident in our ability as a country to overcome this and become stronger from it.
I expect continued volatility in the markets with the virus and elections in focus. The markets have never been a fan of uncertainty, and we are certainly front and center of just that. Housing remains strong; new home construction increased 1.9% in September, its fourth gain in the past five months. Single family housing starts increased 8.5% to a 1.108-million-unit rate, the highest level since June 2007. Building permits rose 5.2%, its highest level since March 2007, led by single-family homes. However, weakness in this data was seen in multifamily housing starts, which were down 14.7%, its second straight month of decline.
Interest rates remain historically low with the 10-year Treasury trading at just 0.85%. To put it quite simply: you lend your hard-earned money to the U.S. Government for ten years, and you can expect to receive 0.85% return on your investment per year for it. This environment has continued to present challenges for fixed income investors. We are beginning to see rates shift slightly higher, so this will have to be closely watched into 2021, as inflation discussions come into focus.
I stress the importance of relying on your financial advisor to help you navigate these times, and not to make emotional decisions. We continue to closely communicate with our asset management partners to keep a good gauge on the markets and portfolios. Regardless of the volatility, the markets remain in a strong upward trend from a quantitative standpoint. Our investment philosophy during these times can especially be brought into focus—having some form of a “guard rail” (i.e., hedging, quant strategies, cash) around equities helps to manage risk and create opportunities when the market presents them. If you have any questions, KL Wealth Advisor’s Managing Partner Mike Lambrechts can be reached at 954-488-3733.
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