FAS Monthly Market Update November 2020

FAS Monthly Market Update November 2020

Posted By FAS Team


Economic Conditions

U.S. GDP increased at an annual rate of 33.1% in the third quarter of 2020 according to the second estimate released by the Department of Commerce.  This is unchanged from the advance estimate released in October.  Unemployment claims rose for the second straight week in mid-December, reaching a three-month high as the economy looks to be slowing with increasing coronavirus cases and more business restrictions.  About 4.8M people who had exhausted state benefits as of the end of November have been receiving federal aide through extended benefit programs – an uptick of 300k from the week prior.  This makes the recently agreed upon stimulus package all the more crucial for displaced workers.  In addition to a $600 direct payment check per adult and per child, the bill will extend enhanced unemployment benefits of $300 per week.  The bill also includes $284B in Paycheck Protection Program loans, $20B for vaccine purchases and distribution for anyone who needs it, $82B for education providers, $20B for testing efforts and $25B for rental assistance and eviction moratorium extension.

After ending October in the red, the markets continued their rise through November and into December.  All three major market indexes were up double digits in November.  International markets made up ground versus domestic indexes as the US dollar continued to fall.  The MSCI EAFE index is now positive for the year, as are most major indexes.  Tech continues to lead as the NASDAQ has now returned over 35% on the year.

FAS Bookshelf

Over the last several years of writing our monthly updates we often quote or cite books in our writings.  We don’t and can’t take credit for every idea or topic we write about because in addition to our own research, we get a lot of our information from newsletters, blog posts, opinion articles, and most of all books.  Several of us often get asked what investing books we’d recommend however, while you may think the advisors at FAS spend all of their free time pouring over books on the financial markets, that is only half true.  There is a wealth of knowledge out there that expands beyond the investing world with information and teachings which can be applied in multiple areas of life.  That being said, we have decided to put together a reading list of books with recommendations from the advisors at FAS.  Yes, there are several recommendations on money, finance and capital markets, but also on other topics as well.  We hope you enjoy these books as much as we have.

The Psychology of Money by Morgan Housel
This book is not just a book on investing.  In fact, it has almost nothing to do with the details of investing.  Once we cut through the math and data analytics of investing, the primary driver of how people save and the decisions they make can be drilled down to one major factor: behavior.  Originally written as a long-form blog post in 2018, Housel takes his 20 stories about people’s behavior with regard to money and expands on them in this very quick and easy read.  This is a book we would recommend that literally everyone should read – you, your spouse, your children, friends and your parents.

Sapiens: A Brief History of Human Kind by Yuval Noah Harari
While this may sound like a boring history book about the evolution of humankind, it is anything but.  Harari breaks down the evolution of man into three major breakthroughs – the cognitive revolution, the agriculture revolution, and the scientific revolution – and how each shaped the course of human history.  He frames it in a way that makes the book read more like a novel rather than a text book.  For those who find this book interesting and want more, we also suggest his follow-up to Sapiens, Homo Deus: A Brief History of Tomorrow, which turns the focus to the future of humankind.

What It Takes: Lessons in the Pursuit of Excellence by Stephen Schwarzman
Stephen Schwartzman co-founded The Blakstone Group, a private equity firm, with $400,000 in 1985.  Today the firm manages nearly $600B in assets.  Schwarzman takes lessons learned from his past experiences running a global investment firm and shares them with readers who can incorporate them into their lives, regardless of their profession.

Man’s Search for Meaning by Viktor Frankl
A timeless classic about the author’s time in four different Nazi concentration camps and how he used his experiences to treat future patients in his profession as a psychiatrist.  With lessons on how to cope with suffering rather than avoiding them, this book is appropriate given the experience the world has gone through together.

The Man Who Solved The Market by Gregory Zuckerman
Jim Simons is a mathmetician who founded Renaissance Technologies, a hedge fund which has earned over $100B in profits.  Simons is regarded as the most successful investor in history, as Renaissance’s Medallion Fund has generated an average annual return of 66% since 1988.  Morgan Housel references Jim Simons in The Psychology of Money citing that the main reason Warren Buffett is wealthier than Jim Simons is because of his several decades head start and the beauty of compounding.  If we were to extrapolate Simons’ investment returns over the same time horizon as Warren Buffett, Simons’ net worth would be in the quadrillions.

Disclosures & Index Definitions

Under style performance boxes, indexes referenced in the equities section for large, mid and small reference the Russell 1000, Russell MidCap and Russell 2000 stock indices, respectively. The Barclays US Government, Barclays Credit and Barclays High Yield fixed income indices refer to Gov’t, Corp, and HY, respectively. Short, Intermediate and Long refer to the time frame of the investments and their positions on the yield curve.

The information and opinions stated in this presentation are not intended to be utilized as an overall guide to investing; nor should they be taken as recommendations to buy, sell or hold any particular investment. This presentation is not an offer to sell or a solicitation of any investment products or other financial product or service, an official confirmation of any transaction, or an official statement of presenter. The opinions and views conveyed are for informational purposes and make no recommendations in regards to how a client’s portfolio should be managed, as that involves inquiring, in depth, of a client’s or prospective client’s risk tolerance, investment objectives, time frame for investing and any other details pertinent to said client’s or prospective client’s financial situation. The presentation may not be suitable to be relied on for accounting, legal or tax advice.

Past performance is not indicative of future returns. Prices and values of investment vehicles will rise and fall as broad market conditions change. Investors’ portfolios may fluctuate, to varying degrees, in tandem with market conditions.  Diversification neither guarantees returns nor does it eliminate the risk of a portfolio decreasing in value. Equity securities tend to be more volatile than bond/fixed income products and carry greater risk factors than that of fixed income products. Smaller capitalization equities (i.e. mid and small caps) typically involve more risk than that of larger capitalization stocks. Political, economic, and currency risk are all risks subsumed under the additional risk factors of investments in international securities, to include  those in both developed and emerging markets. In addition, political conditions in emerging markets can tend to be more volatile than in those of developed markets.

Investments in bonds will be subject to credit risk, market risk and interest rate risk. Interest rates will have an inverse effect on prices of bonds. Bonds of lower credit ratings, also known as High Yield bonds which hold a rating of less than investment grade (BB+ and below), will have greater risks attached than will those of investment grade bonds and will experience greater volatility.

All dates are as of November 30, 2020, unless stated otherwise.

Presentation prepared by Financial Advisory Service, Inc., an SEC Registered Investment Adviser. Securities offered through FAS Corp., an affiliated insurance agency and broker/dealer.

Any dissemination, distribution, copying, or other use of this presentation or any of its content by any person other than the intended recipient is strictly prohibited. FAS only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses to this presentation that involve either the effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion.

Index Definitions

The S&P 500 Index is based on the market capitalizations of 500 large companies whose stocks are listed on the NYSE and NASDAQ. This is widely regarded as the single best gauge of large cap US Equities.

The Dow Jones Industrial Average  is a price-weighted average of 30 actively traded blue-chip stocks, primarily industrials. It is used as a barometer of how shares if the largest US companies are performing.

The NASDAQ is a market capitalization weighted index of the more than 3000 common equities listed on the NASDAQ Stock Exchange. These securities include American Depository Receipts, common stocks, real estate investment trusts, and tracking stocks.

The MSCI EAFE (Europe, Australasia, Far East) Net Index is recognized as the pre-eminent benchmark in the US to measure international equity performance. It comprises the MSCI country indices that represent developed markets outside of North America, Europe, Australia, and the Far East.

The MSCI Emerging Markets Index captures large and mid cap representation across 23 Emerging Markets (EM) countries. With 822 countries, the index covers approximately 85% of the free float-adjusted market capitalization in each country.

The Barclays US Aggregate Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS, ABS, and CMBS.

All index information has been gathered from public sources who are assumed to be reliable, although we cannot guarantee the accuracy or completeness of those public sources.