Insight post

Nov. 3, 2020

Stimulus Stalled, An Antitrust Storm, & More Market Turbulence

Marc’s Market Insights

Here we go again.

 

The election has arrived but a new stimulus package will not. Each side of the negotiations looks to be sticking to their political guns, resulting in no fiscal aid reaching Americans’ mailboxes before today’s election.

 

There’s an old saying in investing: “Buy on the rumor, sell on the news.” And for the last couple weeks, the market has been buoyed by rumors that another trillion-dollar-plus package is imminent.  But what happens if a new stimulus package never materializes? We’re starting to see people reach that realization now.

 

In terms of the economic recovery, the U.S. is beginning to look more like a ‘V-interrupted’ recovery, where potential fiscal stimulus would provide a short boost but then ultimately fade, leaving millions of Americans to fend for themselves again as the coronavirus crisis rages on. In mid-October, the uneven economic rebound looked to be back on track as economic activity was growing and jobless claims were falling.

 

But ultimately, the U.S. economic recovery is tied to its medical recovery. The recent surge in coronavirus cases has dampened everyone’s hopes for a swift economic recovery, with unemployment claims creeping up again in states, a strong decline in consumer spending, and a dark, cold winter ahead.

 

Meanwhile, the markets have been all over the place as investors largely held confidence in Congress’ ability–and political will–to pass a new stimulus bill. For that reason, stocks remained high before falling sharply as a new wave of COVID-19 cases struck the country and investors realized that an influx of fiscal aid was, in fact, not on its way.

 

Third quarter earnings season is in full swing, with around 27% of S&P 500 companies having reported their numbers. Big tech’s earnings are expected on Thursday as the antitrust clouds continue to loom above them. Apple, Alphabet, Amazon and Facebook, together accounting for about a fifth of the S&P 500’s total value, have their stocks trading near record highs, despite increasing antitrust scrutiny from the government. Should Democratic presidential candidate Joe Biden, who is leading in the polls, win the election, tech companies will likely see scrutiny of their anticompetitive practices gain momentum.

 

Election day is today, and as we await the outcome, investors should expect more turbulence in the markets and protect their portfolios accordingly. It’s incredibly difficult to make a bull market case that doesn’t involve trillions in government spending–but of course, another round of stimulus seems like a distant dream.

 

So, how can you prepare your portfolio for more volatility?

 

At Swan, we believe our Defined Risk Strategy is well-positioned to mitigate downside risks to investors’ assets should the markets sell off again. By staying always invested in low-cost ETFs, the DRS is designed to seek consistent long-term rolling returns while also limiting risk during major market downturns by remaining always hedged using long-term put options.

 

In the coming months, the markets may continue to be unpredictable, but you can at least be prepared.

About the Author

Marc Odo, CFA, FRM, CAIA, CIPM, CFP®, Client Portfolio Manager, is responsible for helping clients and prospects gain a detailed understanding of Swan’s Defined Risk Strategy, including how it fits into an overall investment strategy. Formerly, Marc was the Director of Research at Zephyr Associates for 11 years.

Read More Insights
Important Notes and Disclosures:

Swan Global Investments, LLC is a SEC registered Investment Advisor that specializes in managing money using the proprietary Defined Risk Strategy (“DRS”). SEC registration does not denote any special training or qualification conferred by the SEC. Swan offers and manages the DRS for investors including individuals, institutions and other investment advisor firms.

All Swan products utilize the Defined Risk Strategy (“DRS”), but may vary by asset class, regulatory offering type, etc. Accordingly, all Swan DRS product offerings will have different performance results due to offering differences and comparing results among the Swan products and composites may be of limited use. All data used herein; including the statistical information, verification and performance reports are available upon request. The S&P 500 Index is a market cap weighted index of 500 widely held stocks often used as a proxy for the overall U.S. equity market. Indexes are unmanaged and have no fees or expenses. An investment cannot be made directly in an index. Swan’s investments may consist of securities which vary significantly from those in the benchmark indexes listed above and performance calculation methods may not be entirely comparable. Accordingly, comparing results shown to those of such indexes may be of limited use. The adviser’s dependence on its DRS process and judgments about the attractiveness, value and potential appreciation of particular ETFs and options in which the adviser invests or writes may prove to be incorrect and may not produce the desired results. There is no guarantee any investment or the DRS will meet its objectives. All investments involve the risk of potential investment losses as well as the potential for investment gains. Prior performance is not a guarantee of future results and there can be no assurance, and investors should not assume, that future performance will be comparable to past performance. All investment strategies have the potential for profit or loss. Further information is available upon request by contacting the company directly at 970-382-8901 or swan-stg.statik.press. 456-SGI-110320