October 2020 in Review
Daniel Zeigler, CFP, CMFC, Portfolio Manager
Hi everyone. This is Dan Zeigler, Portfolio Manager at Midland Wealth Management. It’s hard to believe that we are heading into the last two months of the year, but if you’re like me – I am excited to get the Presidential election behind us!
I wanted to give a quick update on the markets for the month of October as there’s been a lot of news for investors to digest, with the upcoming election.
We ended last month, if you recall, on a positive note. Unfortunately, at the end of October, we ended on a negative tone with most indexes down 1-2% on the last day of the month. Overall, the S&P 500 was down ~2.66% for the month of October, however still positive for the year – up about 2.80%.
So let’s take a deeper dive into the month of October and see what may have caused the selloff in the last week of October.
Corporate earnings have actually been very good – so far 86% of companies in the S&P 500 are beating earnings estimates and the average beat is ~20.4%, which is outstanding. Historically, companies have only beat expectations by 3-5%, so this is great news for the market.
Despite these strong earnings, the S&P 500 is down about 8% since earnings season began. So what’s leading to some of this downward volatility? Some of it is caused by companies not forecasting what their earnings expectations are going to be next year, especially with the unknowns of COVID-19. So this is causing some investors to be a little worried.
Another cause for the volatility is the increased worries about COVID-19. Europe recently announced new lockdowns as coronavirus cases spiked and investors are worried that we could see additional lockdowns in the U.S. or across the globe.
Markets are also worried about the continued delay of fiscal stimulus, especially at a time when COVID-19 cases are on the rise. Depending on the election outcome, we may not have new stimulus measures until 2021, which could prove to be too late for some companies and individuals.
Technology stocks in the month of October were one of the biggest drags on the market, as it seems investors were a little bit more focused on valuations and some of the undervalued stocks held up a little bit better.
On a positive note, the economy grew at a record pace for GDP in the third quarter – increasing 7.4% over the prior quarter and at a 33.1 annual rate – recovering about two-thirds of the ground it lost earlier in the year.
All eyes will now be on the election and hopefully we will know the outcome shortly. As always, if you have any questions, please reach out to me or another portfolio manager at Midland. Thanks.
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