Stimulus | Perspective on Gov’t Spending and Resilience

Second Stimulus: The markets are closely monitoring if a comprehensive or partial stimulus measure can gain ground in Washington. As we’ve been noting for some time, this may be critical to bolster an economy that is losing momentum. A reminder that we’ve noted often in these updates: the stock market is not the economy. Talks picked up late in the week about a second, large stimulus plan with mixed signals coming from the White House making the outcome very uncertain. It seems Speaker Pelosi and Treasury Secretary Mnuchin have a good working relationship in trying to forge a relief package before election day on November 3rd, but overhanging the negotiations is flip-flopping from the White House.

Worse News to Come on Unemployment Data says Bloomberg Business: The number of Americans seeking unemployment benefits for the first time fell last week by 9,000 to a total of 840,000, according to US government data. Continuing unemployment claims fell to 11 million. Nevertheless, seven months into the pandemic, initial claims are four times the pre-virus levels and higher than their peak during the financial crisis more than a decade ago. There is worse news to come as recent layoff announcements from companies including Walt Disney, Allstate, and multiple airlines have yet to register.

Global Views on Deploying Vaccine: In a survey posted on The Economist, it is interesting to see how major countries feel about where to deploy any COVID-19 vaccine with the US leading the way with initial use. This is likely shaded by the fact the US is behind many of the leading candidates for a vaccine—but interesting nonetheless.

What We’re Reading: Perspective on Inflation and Government Spending: Ben Carlson, from his blog, A Wealth of Common Sense shared a post this week titled “The 7 Things That Matter For Markets Going Forward”. Specifically interesting was the 3rd point regarding inflation, much of which we’ve been writing and hearing lately.

“People like to complain about government debt levels but people have been doing that since the 1920s and there haven’t been any consequences of the massive growth in borrowing.

It’s not so much the grandkids that are at risk here because that debt is never fully getting paid back. In a healthy economy, you should expect government debt to get bigger over time.

The biggest risk to all of this spending is inflation.

And it’s been a long time since investors have had to deal with the impact of inflation considering we’ve been in a disinflationary environment since rates peaked in the early-1980s.

Plenty of people point to the 1970s double-digit inflation as the bogeyman but the WWII scenario of a massive amount of government spending in a short period of time followed by a one-time spike in inflation is probably more likely.

The biggest risk for bond investors is not necessarily rising interest rates. Rising rates would be a good thing for bond investors eventually because those higher yields would translate into higher returns in the future. The biggest risk for bond investors is higher inflation because it erodes the value of your future fixed-income payments.

I’m not all that worried about inflation as it pertains to the stock market because stocks are the best inflation hedge there is but it could make things even worse for bond investors from such low starting yields.”

As Election Draws Near – More Data About Historical S&P 500 Market Performance Under Varying Governments

Schwab Closes Acquisition of TD Ameritrade:

After passing a key regulatory hurdle, Charles Schwab closed its acquisition of TD Ameritrade on October 6. The Board of Governors of the Federal Reserve System gave its approval Sept. 30, for TD Bank, the second largest bank in Canada, to hold a minority stake in Schwab, the regulator said. It was the last regulatory hurdle the Schwab-TD deal had to clear, setting the stage for the combined company.

Following the deal’s close, the integration will take approximately 18 to 36 months, the company said. Until then, Schwab and TD Ameritrade will continue to operate as separate broker-dealers, according to Schwab. As Compass Ion learns more about the future integration, we will communicate further, but do not expect any changes in the short run for clients and expect a seamless client experience in any future transition.

Headlines can be Exhausting: The incredible news cycle keeps marching forward. Sometimes it feels as if last week was a year ago while each day feels like a year. We visited New York Times contributor Carl Richard’s website BehaviorGap to see if he had any clever drawings to make us put these times into better perspective. The graphic below seemed a fitting reminder. Stay resilient despite what happens!

Should you like some assistance, we’re ready to help you with your resilience.