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Summer Cooldown

Coronavirus cases are on the rise again in parts of the US and Europe. The US had a promising slowdown over the summer months, but a return to school and work may be exacerbating the virus’ rise. At the same time, more states are continuing to lift restrictions on gyms, theaters, and indoor dining.

Even if a fully blown second wave emerges later this year, politicians are still hoping to avoid the most drastic shutdown measures that we saw in the spring.

Our Perspective

The economy is surely on more certain footing today than during the pandemic’s immediate aftermath, but the road to recovery is long and filled with dozens of potential roadblocks.

The pace of growth has slowed, friction in the labor market requires times to heal, and fiscal stimulus seems unlikely if not impossible until we get through the current election cycle.

While we believe the economy has reset to an early market state, we would caution against excessive optimism as we expect growth will ultimately settle in at a slower pace than before the pandemic.

Casting the Ballot

We’re only six weeks out from one of the most contentious elections in recent history, and investors are left wondering what the impact on their finances, taxes, and futures may look like.

Beyond the Trump vs. Biden Presidential race, the results in Congress—and in the Senate in particular—will play a key role in determining the future for health care, taxes, trade relations, and more.

Our Perspective

We believe the upcoming election is setting up to be a neutral event at best, and a lose-lose at worst.

While conventional wisdom claims Trump may be ‘better for markets,’ we believe that there are opportunities to be found either way. A Trump win may mean status quo for markets, with added risk of deteriorating relations with China, while Biden may bring higher taxes and regulations.

Staying the course despite political turmoil is an important part of any financial plan, and looking at potential spikes of volatility as an opportunity is a key element of our active investment process.

For more, check out our recent blog post, The 2020 US Elections: Sorting Through the Possibilities.

Technology on the Run

Big tech has been on a boom. While prices fell back to earth a little bit during September, growth tech has still had an extraordinary run of late.

The largest, mega-cap tech stocks now account for an enormous percentage of the most common stock market indexes. Investors are wondering if a bubble is forming, as well as expressing concerns over regulatory oversight and the impact of deteriorating trade relations.

Our Perspective

Valuations in tech may be getting quite high, but we don’t find this growth to be unfounded. Yes, there are pockets of extreme and excess, but there are also many good companies with strong underlying businesses.

In general, we do not see the run in tech as a bubble waiting to burst. We do, however, believe that a selective approach makes sense, and believe our active process is well suited to sort out the good from the bad.

For more, check out our recent blog post, Breaking Down the Run in Big Tech.

Our View
Economic Cycle		The economy appears to be on the cusp of early cycle as we believe the worst is now behind us; the second quarter will mark the low in global growth, and third quarter GDP should be very strong; how sustainable the recovery will be remains governed by the threat of the virus and the speed at which economic activity, business confidence, and consumer confidence normalize
Stock Market		The US stock market remains above its pre-pandemic high; valuations are again looking elevated, particularly in certain areas of the market; a wide range of risks continue to loom on the horizon as well, weighing on equities in recent weeks
Bond Market		Negative and ultra-low interest rates across the globe will remain a major challenge for long-term fixed income returns; credit spreads have tightened from peak levels, but still offer decent value
Foreign Exchange		While we believe the dollar may weaken longer term, short-term, it is difficult to make the argument that currencies will swing significantly
Important Issues on the Radar		Coronavirus: focus has shifted to the pace of the economic recovery, although unemployment may prove stickier than policymakers may expect Trade Tensions: relations have been in decline for some time, and rhetoric is likely to become more hostile with both US Presidential candidates looking to take a hard stance on China Eurozone Integration: stronger fiscal integration in the EU could be a significant positive for the currency bloc, although it is likely to be a long and noisy process to get there Inflation vs. Deflation: the significant demand shock makes it hard to call for inflation, but the sheer size of fiscal and monetary programs around the world should be a cause for concern

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All investments contain risk and may lose value. This material contains the opinions of Manning & Napier, which are subject to change based on evolving market and economic conditions. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

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