What’s Up with the Stock Market?

On September 2, 2020, the Dow Jones Industrial Average hit an all-time high of 29,100. As this is being written, the DJIA is only about 2% below that high-water mark. Let that percolate in your consciousness for a minute.

Now consider “Reality”:  the COVID-19 pandemic still remains a threat to vulnerable segments of the global population as we await a vaccine; unemployment sits at 7.9% in the U.S., with over 11 million people still unemployed after losing their jobs earlier this year; weekly initial jobless claims remain elevated; many small businesses across the country have gone out of business, never to return; protests and rioting occurred in many cities this summer; a contentious U.S. election will finally take place on November 3rd. So, what’s up with the stock market? How do we square the events of 2020 with a market that currently seems oblivious to all that has happened and our present state of heightened uncertainty?

We think there are some good reasons for the stock market’s buoyancy. Here are some brief thoughts for your consideration:

  1. The Federal Reserve

The Fed took unprecedented action this year to shore up an economy devastated by massive shutdowns and job losses, through $2.3 trillion in loan programs. They also implemented asset purchases and liquidity facilities to stabilize the capital markets, while dropping the Fed Funds rate to near zero. Treasury yields have dropped to near record lows. This is supportive to stocks for two reasons: first, a lower rate applied to discounting future cash flows makes those assets more valuable (all other things held constant), and second, with low yields, investors have fewer attractive alternatives to equities.

  1. Government Stimulus Programs

The $2 trillion CARES Act, signed into law on March 27, 2020, provided direct payments to families and the Paycheck Protection Program for small businesses, among other things.  This money will ultimately end up in one of three places: being saved, being spent, or invested in the market. Increased spending will multiply throughout the economy, which increases incomes and corporate profits. Invested funds increase the demand for equities. Another round of stimulus spending, if approved, will have similar effects.[1]

  1. COVID-19 Vaccine and Therapeutic Research

We believe that investors remain optimistic about vaccine research and that its eventual widespread availability will bring the economy back to pre-pandemic levels within a reasonable timeframe. While no one knows what the timing will be, there can be little doubt that investors remain bullish on the prospects for successful research and development of a vaccine and therapeutic treatments.

  1. Markets are Forward Looking

Most stock investors look beyond day-to-day headline news to assess the probable future financial landscape using a long-term lens. Investors understand that it may take some time for the economy to regain its footing after experiencing this sharp, dramatic pandemic-caused recession. Because finance theory tells us that about 90% of a stock’s value comes from estimated cash flows generated more than one year from now, we can surmise that investors believe the economy will eventually recover.[2]

  1. Winners and Losers

Year-to-date through September, the S&P 500 Index is up 5.6%. The top 10 contributors to the Index added almost 9% of that return, without which the index would be down a little over 3%. Those companies include names like Apple (+59%), Amazon (+70%), Salesforce (+54%), Home Depot (+29%) and Netflix (+54%). These and many other firms benefitted from the pandemic, directly and indirectly, as investors flocked to their perceived safety. Meanwhile, many firms have struggled through the recession, with the median stock in the Russell 3000 Index down 11% this year. Especially hard hit were industries directly impacted by the pandemic, such as energy, banking, leisure, and entertainment. As the economy recovers, and especially if another Government stimulus package is implemented, more firms can be expected to participate in the market rally as their earnings outlook improves.[3]

As a final thought, the upcoming presidential election is upon us, and Mr. Biden is leading in the polls and betting markets. As noted above, the forward-looking stock market is already taking this into consideration, but no one knows, of course, how the election will actually turn out. If Mr. Trump wins re-election with Republicans keeping a majority in the Senate, we can expect a continuation of the Trump Administration policies. If the Democrats win the White House and the Senate, we can expect a reversal of many of those policies, with possibly more fiscal spending and tax increases.

Our investment philosophy at Coyle Financial is to make investment decisions based on information and evidence, not speculation and emotion. We have seen many election cycles come and go over the years, and our experience suggests that whatever the outcome of this election, even with all of the divisive rhetoric inflamed by social media, will not lead inevitably to the wholesale rejection of capitalism in this country, or of free markets, property rights, and the rule of law.

In other words, regardless of the election results, we are not prepared to bet against the United States as the leading economy for wealth creation in the world. Accordingly, we are not planning to make any significant changes to our asset allocations at this time. Please speak with your advisor if you have any concerns or any changes to your overall financial objectives.


John serves as Chief Investment Officer for Coyle Financial Counsel and is responsible for overseeing the investment process. John’s prior experience includes managing institutional fixed-income portfolios for corporations, pension funds, non-profit organizations and foundations at several large, global asset managers. With more than 20 years of institutional investment experience, he is energized by helping individuals understand the role investing plays in meeting their long-term financial goals.
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We value your comments and opinions, but due to regulatory restrictions, we cannot accept comments directly onto our blog.  We welcome your comments via e-mail and look forward to hearing from you. 

All information is from sources deemed reliable, but no warranty is made to its accuracy or completeness.   This material is being provided for informational or educational purposes only, and does not take into account the investment objectives or financial situation of any client or prospective client.  The information is not intended as investment advice, and is not a recommendation to buy, sell, or invest in any particular investment or market segment.  Those seeking information regarding their particular investment needs should contact a financial professional.  Coyle, our employees, or our clients, may or may not be invested in any individual securities or market segments discussed in this material.  The opinions expressed were current as of the date of posting, but are subject to change without notice due to market, political, or economic conditions.

Copyright © 2020 Coyle Financial Counsel.  All rights reserved.

[1] “Upside-Down Markets: Profits, Inflation and Equity Valuation in Fiscal Policy Regimes”, (O’Shaughnessy Asset Management)

[2] “Wall Street versus Main Street: Why the disconnect?”, McKinsey & Company (10/2020)

[3] Morningstar Direct


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