The Vantagepoint Market Perspective: Never a Dull Moment

10/08/2020

 

Heightened volatility returned to the major indexes in recent days, sending them sharply lower as many of the high-flying tech companies that had fueled the market’s advance over the summer sold off, only to stage a partial rebound on Wednesday.

As of Tuesday’s close, the Nasdaq had given up 10% during the prior three trading sessions, while the S&P 500 had logged three losses in a row for the first time since early June. With the Nasdaq rebounding over 2% on Wednesday, it remains to be seen whether the market simply took a break after its recent big run or if this marks the beginning of extended market volatility.

The latest economic reports have bolstered hopes that the economy is rebounding from the painful shutdowns earlier this year. Friday’s monthly payroll report showed the labor market continued to claw its way back in August, as the economy added 1.37 million jobs. That followed gains of 1.73 million jobs in July and 4.78 million in June. Meanwhile, the unemployment rate fell to 8.4% in August from 10.2% in July. In April, it stood at a record 14.7%.

However, first-time unemployment claims are still running at well over 800,000 a week. Though that’s better than in past months, as of mid-August more than 29 million people were receiving some type of unemployment insurance.  

Uncertainty Persists

While the economic recovery certainly appears to be headed in the right direction, market participants should still be vigilant and not simply assume that its recent trajectory will continue without disruption. A lot of uncertainty remains about both the recovery and how quickly the nation’s businesses and its citizens will be able to get back to normal. In addition, historically, September and October tend to be volatile times for the market.

The upcoming November election and what the political landscape will look like in 2021 may also be factors, along with ongoing worries about a potential second wave of COVID-19 infections this winter.  

And the market may be recognizing all — or at least some — of those variables.

The New Normal?

Optimists say the U.S. is learning to live with COVID-19 and that the current conditions have become the new normal. However, although our country has indeed learned to live with the current set of circumstances, we do not believe they are sustainable over the long term.

In large swaths of the country, the education of our children has not resumed for full-time, in-classroom lessons amid concerns that even if children are not susceptible to the virus, their parents, teachers, and others they come in contact with are vulnerable. This has led to many schools opting to delay or forgo in-person classes, at least for the time being. Options for childcare also remain limited relative to pre-virus conditions, which themselves often prove quite challenging for parents.

Meanwhile, colleges face similar reopening decisions, along with the added worry that if a college sends infected students who would otherwise normally reside on campus back to their hometowns, they will enable the virus’ spread. 

On the business front, there is still a large contingent of people who continue to work remotely from home rather than at the office, which has knock-on effects for supporting businesses like restaurants, parking lots, conference venues, and other enterprises that previously depended on those office workers for their revenues.

Meanwhile, many entertainment-related businesses — things like sports stadiums, concert halls, restaurants, bars, and other businesses that depend on people gathering together — are still closed or at best, only partially reopened. Others, particularly privately owned restaurants and bars, have not survived the closures.  

Vaccine Protection

For many months, the hope has been that a vaccine will be developed in record time that will make us immune to the virus’ effects. Earlier this year, the government launched Operation Warp Speed, with the goal of developing a COVID-19 vaccine and delivering 300 million doses by early 2021.

But the rush has also sparked concerns that a vaccine will be released before it is fully tested and able to be safely manufactured and deployed. And in recent weeks, both the timing and effectiveness of a potential vaccine have become politicized  and called into question. These circumstances prompted vaccine manufacturers to issue an unprecedented safety statement on Tuesday, pledging to not release any vaccines that are not fully vetted.  

In our view, we could face a dire scenario if an effective vaccine arrives and people are reluctant to take it because they believe it was rushed into release and is unsafe. The market may also be starting to appreciate that even if the vaccine arrives in the next few months, its deployment and adoption is still likely to stretch well into 2021, even under the most ideal circumstances.

In short, there are still many unknowns surrounding COVID-19 and the effectiveness of efforts to combat it. And, there are still many areas of our daily life that are not yet back to normal. Which means we have an economy that, while thankfully improving, is still not even close to its pre-pandemic levels.

In light of all these variables, the market’s pullback in recent days may indicate that some market participants are recognizing that uncertainty and beginning to price it into the markets. Optimism may yet resume and dominate market behavior, but we should all remain vigilant for signs of volatility staging its own sustained comeback.

Disclosures:

This information is intended for institutional use only and is not intended for individual investors or the general public. This article includes links to external websites. While we believe this information to be reliable, we cannot guarantee its complete accuracy.

Please note that this content was created as of the date indicated and reflects the authors’ opinions. These opinions are subject to change, without notice, due to market conditions or other factors.

This is not intended as a solicitation nor does it constitute investment, tax, or legal advice. Reference to any fund or asset class is not a recommendation to buy, sell, or hold that fund or asset class. Neither ICMA-RC nor its subsidiaries are responsible for any investment action taken as a result of the information provided herein or the interpretation of such information. Investors should carefully consider their own investment goals, risk tolerance, and liquidity needs before making an investment decision. Investing involves risk, including possible loss of the amount invested. Past performance is no guarantee of future results.

When Funds are marketed to institutional clients by our Defined Contribution Investment Only (DCIO) team, the Funds are offered by ICMA-RC Services, LLC (RC Services), an SEC registered broker-dealer and FINRA member firm. RC Services is a wholly owned subsidiary of ICMA-RC and is an affiliate of VantageTrust Company, LLC and Vantagepoint Investment Advisers, LLC. Learn more at www.vantagepointfunds.org.

Disclosures:

This website is for institutional use only and is not intended for individual investors or the general public.

This information is intended for institutional use only and is not intended for individual investors or the general public.

Please note that this content was created as of the date indicated and reflects the authors’ opinions. These opinions are subject to change, without notice, due to market conditions or other factors.
This is not intended as a solicitation nor does it constitute investment, tax, or legal advice. Reference to any fund or asset class is not a recommendation to buy, sell, or hold that fund or asset class. Neither ICMA-RC nor its subsidiaries are responsible for any investment action taken as a result of the information provided herein or the interpretation of such information. Investors should carefully consider their own investment goals, risk tolerance, and liquidity needs before making an investment decision.

When Funds are marketed to institutional clients by our Defined Contribution Investment Only (DCIO) team, the Funds are offered by ICMA-RC Services, LLC (RC Services), an SEC registered broker-dealer and FINRA member firm. RC Services is a wholly-owned subsidiary of ICMA-RC and is an affiliate of VantageTrust Company, LLC and Vantagepoint Investment Advisers, LLC. Learn more at www.vantagepointfunds.org.