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October 2020 Investment Commentary

The summer rally cooled in September, but the third quarter still saw positive returns across most asset groups.  Portfolios continued to gain, driven by full commitments to stocks, as well as increased allocations to bonds.  An absence of commodity exposure during a commodity rally and recently elevated cash, to provide defense, acted as modest headwinds during the period.

  Third Quarter Year to Date  Five Years (ann.)
World Stocks 8.1% 1.4% 10.3%
S&P 500 8.9 5.6 14.1
Developed International Stocks 4.8 -7.1 5.3
Global Bonds 2.5 6.1 4.0
Commodities 9.1 -12.1 -3.1


Septembers, and Octobers, tend to be characterized by reality checks.  Much of this has to do with their place on the calendar, the fall representing “serious season” following the summer frolic, but also the imminence of the upcoming year, for which forecasts have to be firmed up.  Often both company managements and Street analysts, predisposed to look on the bright side, feel the need to lower their guidance.  This phenomenon is at play perhaps more than normal in 2020, given the major unknowns and wide swings in corporate and economic performance, in both directions, both current and projected.  With stocks having gained over much of the April through August period, supported by recovery hopes, they have not surprisingly pulled back as the path to recovery proves to be uneven, and mostly uphill.

As the global death toll passes one million, the pandemic continues to confound.  Regions and countries that were unable to quickly gain the upper hand in the early days generally have been unable to escape the continuing ravages and periodic spikes.  It remains difficult to accept that the United States, ranked at the top of surveys a year ago in terms of perceived preparedness for a pandemic, has now lost (according to the Real Clear Politics COVID tracker) 211,000 people to the virus, while a country like Vietnam, for example, with almost a third of the U.S. population, has lost 35.  South Korea, with just under a sixth of our population, has lost 415 people, and Pakistan, with two-thirds our population, has 6,500 deaths.  With our latticework of often conflicting rules, greatly differing philosophies and strategies across governorships, and muddled communication, our advantages seemingly were squandered. 

As we contend with the intractability of COVID-19, the economic picture remains, expectedly, very cloudy.  On a granular level, data is mixed, with strong housing numbers (new home sales hitting highest levels since 2006) offset by the retail sector, where the pace of bankruptcies for 2020 is rivaling that of 2010, which captured the worst of the Global Financial Crisis.  National and global forecasts generally continue to call for a strong recovery over the second half of the year, following the 31.4% GDP drop in the second quarter. The third quarter is likely to see a 30%-plus jump, the large increase a mathematical near-certainty as it is compared to the prior quarter, but a greater test comes in the fourth quarter.  Estimates have generally been trimmed from upper to low-middle single-digit growth, given the pandemic’s persistence.  This would suggest a full 2020 decline around 4%, setting up a possible restoration of expansion around 4% in 2021.

On this landscape, the government policy response, so large and crucial in the spring, is in need of an update.  The Federal Reserve continues to express unprecedented levels of monetary accommodation, including a pledge to not raise policy rates for at least 40 months, something that would be unfathomable to a time-traveling Fed-watcher from any other era.  But the fiscal mechanism, remarkably bipartisan when the $2.2 trillion CARES Act was passed at the height of the emergency in late March, is now caught up in political nets.  House Democrats have put forward a $2.2 trillion package, slimmed down from a $3.5 trillion version passed in May, that includes a restoration of the $600 weekly jobless benefit that expired on July 1st, along with a new round of $1,200 stimulus checks.  Republican leaders are closer to the $1.0 trillion level, and an impasse seems likely.  As this is written, however, Treasury Secretary Steven Mnuchin and House Leader Nancy Pelosi are talking, both seeing a benefit in getting something done ahead of Election Day.

Along with some expectation of fiscal help, markets continue to be supported by hopes for an expeditious vaccine search, seen as our most realistic means of escaping the COVID crisis.  Progress on this front continues to show great promise, with as many as 40 different vaccines in clinical trials, and at least one, the Oxford University/AstraZeneca entry, in the advanced testing stage.  Projections are for widespread availability ahead of mid-2021, with smaller key groups, such as frontline healthcare workers, possibly vaccinated late this year.  This however is still not close to a guaranteed timeline, and it will take time to measure efficacy with appropriate thoroughness, as this exercise has necessary, built-in time factors.  Overall, this vaccine search has so far been impressive in its efficiency, and obviously is a hugely important part of the recovery scenario discounted by more sanguine investors.

The upcoming quarter no doubt will be squarely tied to electoral politics, the election itself, and the aftermath, all of which will likely test investors.  The current Supreme Court justice confirmation process throws in an extra wrench, and the first debate’s tenor injects an unsettlingly chaotic element.  Joe Biden, still ahead in polls for what that is worth, is seemingly viewed by the markets as a moderate, though with some need to incorporate factions to his left.  While there are vast amounts of nuance around this, markets historically have done better under Democratic presidencies than Republican ones, with an S&P 500 annual return of just over 11%, compared to just under 7%, since 1945, a significant spread especially over any longer period.  Again, past is never assuredly prologue, particularly in investing. 

For the first time in three quarters, we are holding with our recommended portfolio positions.  In a period when possible outcomes arguably appear more binary than usual, including COVID and the therapeutic response, the economic outcome, and a key presidential election along with Congressional undercard, the portfolios are built with somewhat of a risk straddle.  We maintain a full equity commitment, now at modestly cheaper prices after a September pullback, incorporating healthy commitments to technology and health care and other large capitalization growth sectors, complemented by less loved value, small capitalization and non-U.S. stocks.  Carrying the full equity allocation through the spring period was a minority view at a time of high bearishness, and it has proved helpful.  At the same time, however, we have enhanced portfolio defense with beefed up bond and cash allocations, having trimmed hedged equity and also eliminated commodity investments.

Of course, and perhaps more so during the current period, our recommended positioning is always subject to adjustments as events might dictate. 

We hope you are enjoying the early Fall.  As always, we are always on call if you have any questions or concerns.


David S. Beckwith, CFA

Managing Director & Chief Investment Officer


This letter may include forward-looking statements.  All statements other than statements of historical fact are forward-looking statements (including words such as “believe,” “estimate,” “anticipate,” “may,” “will,” “should,” and “expect”).  Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct.  Various factors could cause actual results or performance to differ materially from those discussed in such forward-looking statements.