As of this morning, the Nasdaq Composite Index has made new highs recently, as has the S&P 500 Index. The Dow 30 Industrial Average is trading at 28,493, below its February high of 29,398. Looking ahead, LPL Research believes with the presidential election 2 months away that it is at this moment, a coin toss. US Presidential elections consistently have been close. Four of the past five elections have been decided by less than a 5% margin in the popular vote, so a landslide victory for either candidate appears unlikely. Although early polling data appears to show Biden as the front runner, LPL Research continues to follow market signals, which currently suggest an incumbent victory.

Regardless of who wins the Presidency, equity markets prefer a split Congress. A split Congress historically has been better for stocks, which tend to like check and balances to make sure one party doesn’t have too much sway. The house currently is held by the Democrats and if Trump wins reelection, the Republicans may hold their Senate majority. Many key Senate races are currently little more than toss ups, but in an environment where Trump would get enough electoral college votes for a victory, it seems unlikely that the Democrats would flip enough seats – they would need four – to take the Senate. If Biden wins, then the possibility of an all Democrat Congress increase – a scenario that the equity markets would be less attracted to. Remember, these evaluations of market impact are not voting recommendations. LPL Financial Research simply wants clients to be aware of historical tendencies that occur during the election process.

So why are the markets currently acting so well? Recently reported corporate earnings blew away expectations that ended up being way too low. The average corporate upside surprise has been approximately 22%, which LPL believes is the highest ever recorded going back several decades. At 82%, the percentage of S&P 500 companies that beat earnings targets is the highest since FactSet began tracking that statistic in 2008. Earnings are still tracking to a significant 33% year-over-year decline, but that is certainly better than the 45% decline reflected in analysts’ estimates when reporting season ended.

Why were estimates so far off? LPL Financial Research thinks estimates were off because analysts may have been guessing in many cases because of the lack of guidance from companies’ management teams. Analysts also underestimated companies’ abilities to cut costs along with the positive impact of monetary and fiscal stimulus.

So where do we stand? The S&P 500 has already eclipsed LPL Financial Research end of year target of 3300. Good news on COVID – 19 vaccines may propel the markets higher, but election events could cause some market turmoil. LPL Financial Research is optimistic about stocks a year out, but for now they are mildly cautious. Please contact me by phone, or make an appointment online using our Legacy Wealth Planning website if you have any questions regarding your investments or our other estate planning services. – Mark

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. No strategy assures success or protects against loss. Economic forecasts may not develop as predicted. Some of this research material has been prepared by LPL Financial. All indices are unmanaged and may not be invested into directly.

The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors. The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index.  Approved Tracking #:  1-05050828.

 Referenced material: LPL Research Weekly Market Commentary dated August 17^th and 31^st, 2020.