Caroline R. from Salem, OR asks: Hello Mitch, I’m curious to hear your thoughts on another stimulus plan. I work in the fitness industry, and without more federal help I worry our business will not survive. But I also think this is true for small businesses across America, and that it could affect the stock market more than people think. Your thoughts?
Mitch’s Response:
Thanks for writing, Caroline, and I empathize with your situation in the fitness industry. I know it’s been very challenging for small businesses in retail, hospitality, fitness, and other industries that essentially require physical interaction. With Covid-19 cases on the rise and winter quickly approaching, many business difficulties still lie ahead – at least in the short-term.
Many investors and Americans alike have been laser-focused on stimulus discussions, which is a point of frustration for many. In my view, the likelihood of a deal between House Democrats and Senate Republicans before the November 3rd presidential election is basically zero. Most market-watchers agree that it should not be, however. Even the Federal Reserve, which customarily steers clear of any political process, stated in the September minutes that they view fiscal policy as the optimal response to produce economic stimulus moving forward.1
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Although the timing of stimulus may not be optimal for you and many other businesses like yours, I do believe the silver lining is that stimulus is indeed coming. The political will is there – but it’s the size of the package that is making it elusive. Regardless of who wins the presidency, the need for more economic stimulus is not going away, and that is a bipartisan view.
What’s more, I think we will start to see some softening of economic growth in Q4, which may spur Congress to more concrete action. The jobs market is already showing signs of struggle in an effort to claw back to pre-pandemic levels. In September, U.S. employers added 661,000 jobs, which was far below the 859,000 expected and marked a sharp slowdown from gains made over the summer. According to the jobs website Glassdoor, the number of job postings fell -0.3% in September compared to August, which may be an early indication that the ‘low hanging fruit’ job gains have already been posted. The U.S. has replaced 11.4 million of the 22 million jobs lost to the pandemic, but momentum is likely to slow until the virus comes under better control and/or a vaccine is widely distributed. Neither outcome seems like for 2020, which underscores the likely need for more fiscal stimulus before the end of the year.3
As far as the market is concerned, I would agree that there is a certain fixation on stimulus. We’ve seen bouts of downside volatility when talks break down, and recovery to the upside when the two sides appear to closer to making a deal. I would expect this relationship to play out in Q4, until a deal is done. But as my long-time readers know, I never advocate making portfolio moves in response to short-term uncertainties or movements in the stock market, and I do not think it would be wise to try and time the market relative to a stimulus deal. Better to be positioned for when a deal eventually comes, in my view, which means maintaining an asset allocation in line with your long-term goals.
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Disclosure