In a Nutshell by Ken Herman

Optimism among investors historically grows after the 4th of July holiday.  The last two weeks of July are typically positive for stock markets, normally driven by positive earnings announcements. The Street has already observed that the analyst community was too pessimistic about second quarter results, so expect lots of beneficial surprises.  Even more important than the second quarter results may be the third quarter guidance. Many companies are issuing more positive guidance as they learn to cope with the coronavirus.   

The stock market often meanders higher in August during Presidential election years as the candidates try to impress voters, boosting consumer as well as investor confidence.  Investors should begin to see higher trading volume, especially after Labor Day.  Higher trading volume tends to amplify recent market trends, so if August is lackluster, then September could be a tough month. 

The decision to reopen schools is already being debated amidst the coronavirus, and this debate will likely persist in school districts across the country.  The quicker daily life gets back to normal, the more optimistic investors will be.  Distractions, such as whether or not schools will reopen, can hamper investor confidence.  However, mid-September quarter-end window dressing typically boosts fundamentally superior stocks, especially as institutional investors strive to make their portfolios more attractive for their quarterly reviews.

The Presidential debates should be in full swing by October.  All election candidates should be trying to impress voters, which is usually good for both consumer and investor confidence.  We should not be too distracted by the polls, since they were wrong four years ago.  By mid-October, third quarter earnings reporting will be in full swing. Companies are expected to announce improving sales and earnings as businesses adapt to coronavirus ongoing distractions.  Furthermore, one or more Covid-19 vaccines could be approved, with availability at least predicted soon. Such an amazingly rapid vaccine development announcement should help to boost business, voter and consumer confidence.

Obviously, November will be highlighted by the Presidential election. Let’s hope for a decisive outcome, otherwise 2020 election results may be endlessly contested.  Investors do not like uncertainty, so hopefully there will be clear winners in all key races. An uncontested election will allow the path for the U.S. economy to be much more certain.  November is also historically a seasonally strong market month, when an early “January effect” commences just before Thanksgiving. Thanksgiving is normally a happy time of year as we gather to meet with friends and family for food, libations and (hopefully) football.  When people are happy, investors are happy and more confident, which is why November is historically a seasonally strong month.

The seasonal religious holidays also usually bring happiness and investors looking to invest. However, December can be characterized by tax selling as investors often realize losses to offset their gains (unless capital gain taxes are expected to rise in 2021). Depending on the election outcome, year-end tax as well as fear selling could be more robust than in previous years. 

One thing the Coronavirus has taught Americans, as well as those around the world, is that it is against human nature to be locked up.  As we finally get out and about more normally, the “velocity” of money naturally should accelerate, and prosperity almost certainly should rise! The eventual positives regarding the slowing of Covid-19 spread, a coming vaccine, and a decisive direction for in-person schooling would all be contributors to a positive national mood, setting the tone for a good fourth quarter and start for 2021. A dominant election win by President Trump should especially insure good markets.

However, the best defense for investors (against less than desired outcomes) remains a strong offense, owning fundamentally superior stocks. Our focus going forward should be on companies that can sustain strong sales and earnings, regardless of the ongoing negative news media.  Owning fundamentally superior stocks should provide investors more control over their own destiny, regardless of seeming endless distractions! Less fake news, more real good news and more love for America could provide a Merry Christmas for (almost) all Americans!