The recovery in the financial markets hit some turbulence in October, as investors wrestled with anxiety about increasing COVID cases. However, a surge in gross domestic product (GDP) in the third quarter may signal that the economy is on the rebound.1

Through October 28, all major indexes had mostly recouped most of their losses from the COVID crash in March. However, all were down for the month of October. Below is each index’s return from October 1 through October 28:

S&P 500: -2.73%2

DJIA: -4.54%3

NASDAQ: -1.46%4

Here are the year-to-date returns of the major indexes:

S&P 500: 0.40%2

DJIA: -8.14%3

NASDAQ: 21.04%4

What spooked the markets in October? There are a few factors, but as is the case with most things in 2020, COVID may be the primary factor.

COVID Cases Ramp Up

The COVID numbers are surging in the United States, suggesting that the end of the pandemic may be nowhere in sight. On Wednesday, October 28, the seven-day average for new daily cases hit an all-time high of 71,832, an increase of more than 20% in only a week.5

Twenty-nine states hit record levels for daily new cases in October. Forty states had an increase of 10% just in the last week of October.6 Thirty-six states had increases of at least 5% in COVID-related hospitalizations in the final week of October.5

The surge in cases is leading to a new round of business closures and regulations. Illinois recently stopped indoor dining at bars and restaurants.7 Investors may be spooked by the prospect of a second round of closures and its impact on the economy. A new report from Yelp found that 60% of businesses that were shutdown for COVID will never reopen.8

Stimulus Outlook

The uncertainty of a second stimulus may also be a drag on the markets. In fact, Gary Cohn, former president and CEO of Goldman Sachs and former White House National Economic Council Director, says it is a primary factor driving the markets’ poor performance in October.9

He added in a recent interview that, “no one thinks we’re going to have stimulus until after the election,” and that, “we know that the markets do not like unpredictability.” He said that there was “100% probability” that stimulus won’t happen until after November 3rd, and possibly not until after the inauguration.9

Fund Flows

Some recent data on mutual fund flows may provide insight into how investors feel about the financial markets. Through October 21, equity funds (including mutual funds and ETFs) saw net outflows for 11 consecutive weeks. That means more money flowed out of these funds than flowed into them.10

On the other side, taxable fixed-income ETFs have seen four straight weeks of net inflows. That may mean that investors are leaving equities for fixed income securities, even with interest rates near zero.10

GDP Surges in 3rd Quarter

On a positive note, GDP surged by 33.1% in the third quarter, beating analyst expectations of 32%. The third quarter number is the largest quarterly GDP gain on record, easily beating the previous high of 16.7% in the third quarter of 1950.11

Of course, the third quarter surge comes after a 31.4% decline in GDP in the second quarter. Even with the increase in the third quarter, the economy is still projected to contract by 3.5% in 2020.11

The markets and the economy have rebounded, but the future is still uncertain. This may be a good time to explore options that can protect your assets from market volatility. Contact us today at MasterPlan Retirement Consultants. We can help you explore these options and implement a strategy to protect your financial future. Let’s connect today and start the conversation.

1https://www.cnbc.com/2020/10/29/5-things-to-know-before-the-stock-market-opens-october-29-2020.html

2https://www.google.com/finance/quote/.INX:INDEXSP

3https://www.google.com/finance/quote/.DJI:INDEXDJX

4https://www.google.com/finance/quote/.IXIC:INDEXNASDAQ

5https://www.cnbc.com/2020/10/28/covid-cases-hospitalizations-continue-to-surge-as-us-reaches-critical-point-in-pandemic.html

6https://www.cnn.com/2020/10/28/health/us-coronavirus-wednesday/index.html

7https://www.cnbc.com/2020/10/28/5-things-to-know-before-the-stock-market-opens-october-28-2020.html

8https://nypost.com/2020/09/17/majority-of-covid-19-business-closures-are-permanent-report/

9https://finance.yahoo.com/news/stimulus-donald-trump-gary-cohn-markets-100-percent-probability-deal-wont-pass-before-the-election-214720697.html

10https://lipperalpha.refinitiv.com/2020/10/u-s-weekly-fundflows-insight-report-etf-and-fund-investors-focus-on-fixed-income-during-the-fund-flows-week/

11https://www.cnbc.com/2020/10/29/us-gdp-report-third-quarter-2020.html

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