In a Nutshell

By Ken Herman

Economic and Stock Market Recovery Continues

“Perhaps the most encouraging thing about the Q3 data was that growth surged in September.”

I blame the very controversial election and overall disrespect of the president for the constant stream of market critics who talk down the generally ongoing stock market rally as well as the nation’s vigorous six-month economic recovery. Why do many people feel this longevity and ongoing upward trend isn’t sustainable or rational?  

Some commentators crow about lofty valuations, China tensions, big tax increases coming under a Biden administration, ongoing social unrest, another surge of COVID-19, or a combination of these above factors. This still feels to me like “the most unloved market rally of all time.”

While China’s coronavirus caused politicians to demand a nationwide March and April shutdown of non-essential businesses, as well as other economy-related entities, throwing the economy into a short-term tailspin, strong economic recovery began in May and picked up speed during the third quarter of this year. The Fed’s sweeping promise of eternal QE, accompanied by huge spending bills passed by Congress, created a market that never looked back. This set the tone for what is potentially shaping up to be a glorious fourth quarter, where GDP has bounced back, delivering what so far has been a super economic V-shaped recovery.

The mid-2020 U.S. economy acted like a coiled spring. Companies became leaner and meaner by summer, much more so than they did before the economy emerged from the 2008-2009 Great Recession (when earnings growth gradually exploded higher from very low recession levels).

However, even as America deals with recent extremely controversial elections, the ongoing impact of the Wuhan coronavirus remains in the forefront of added negative news.  On top of the extensive concerns about presidential voting irregularities, concerns about completely reopening businesses and schools have not gone away.  

Opinions surrounding COVID-19 are far from unanimous.  How concerned should we be about case numbers and risks surging again? What is the impact when measured by hospital caseloads and progressively lower death rates? What is the impact of increased testing?  We have so many so-called authorities telling us to just “listen to the science,” even while many of the leading scientists on the virus don’t agree on many key points of substance.

What is more encouraging (in light of COVID-19 continuing to hamper everyday life for most of the country) is that non-farm payrolls rose by 638,000 in October (announced Nov. 6).  The unemployment rate also plunged from 7.9 percent to 6.9 percent, six-tenths below the Fed’s year-end median forecast!  This confirmed another solid job gain for October.

Thankfully, this is how recoveries work. The best news may be that this recovery continues to play out in remarkably fast (as opposed to slow) motion. A decade ago, we were two years into the recovery when we finally got to labor trends close to what we have witnessed during the past several months.  Those who predicted a slow economic recovery (because recoveries are almost always L- or K-shaped) were generally wrong so far, for which we should all be grateful.

Perhaps the most encouraging thing about the Q3 data was that growth surged in September.  It appears that the USA’s growth will continue thanks primarily to President Trump’s ambitious economic leadership and direction. We have not lost momentum, at least so far! However, we live in a headline-driven market where key words dominate market direction.  

So, all the trading platforms and any positive headlines that cross the tape about a readily available vaccine, further GDP growth, low unemployment or an increase in corporate valuations will provide more upside momentum for the epicenter and potential new market highs for stocks and the economy.