Well, the election is two weeks away with
many voters making use of early voting and mail in Ballots. According to LPL,
the stock market is more centered on COVID-19 cases and its effects on growth
for the U.S. economy than on what happens in the election. Also, Speaker of the
House Nancy Pelosi and Treasury Secretary Steven Mnuchin continue to meet and
discuss a possible additional COVID-19 relief package for struggling Americans.
If a successful package is agreed upon it will be viewed as stimulative for the
economy and will most likely have a positive impact for equities. These
certainly are interesting times.
Many clients are asking me why is the
stock market acting so well when there are so many uncertainties? The simple
answer is the stock market is trading on expected earnings for 2021 and beyond.
That is where LPL Research is putting its focus and where we should put ours.
2021 is when economic conditions may return to some semblance of normal. LPL
Research estimates that the amount of earnings that S&P 500 companies can
generate after the pandemic ends, is about $165 per share. The combination of
efficiencies gained during the recession (which LPL thinks ended a few months
ago), the strong performance of winners, and the tremendous progress in
COVID-19 treatment and vaccine development, all suggest we may be only a year
away from reaching normalized earnings, but they realize the exact timing of
that is difficult to predict.
One of the negative consequences of an
aggressive Federal Reserve (Fed) is incredibly low interest rates. Yes,
mortgage rates are low and that is driving a residential real estate boom, but
for seniors who depend on bank rates, Certificates of Deposits or some type of government,
municipal or corporate fixed income bonds, these low rates are painful. Looking
ahead, it seems that these low rates will last for the foreseeable future and
we need to accept this new reality.
LPL Research has a year-end target range
on the S&P 500 Index of 3,450 – 3,500, based on a PE ratio of near 21x and
they anticipate further gains for this young bull market as the new economic
expansion continues. They acknowledge that the election is a wild card, but
history tells us election driven volatility tends to be temporary and is often
followed by solid gains.
We certainly all hope this pandemic ends
in 2021, one way or another. Until then, we at Legacy Wealth Planning hope you
are staying safe and are getting through this challenge with as few difficulties
as possible. If you have any investment questions or needs, do not hesitate to
contact us. – 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. Referenced material: LPL
Research Weekly Market Commentary dated October 12, 2020 and LPL Financials
Ryan Detrick’s Client Letter dated October 1, 2020, Tracking #1-05061539. LPL Approved Tracking #: 1-05070129.