October arrived today in North Carolina in full autumnal brilliance. Zero humidity, a clear blue sky, and, tonight, a full harvest moon. The dogwoods are turning red, always the first. The season’s first cold front blew through on Tuesday night. Change is in the air.
For me, October 1 is basically New Year’s Day. It’s not a lazy day of football, cornbread and cabbage, and soon-to-be broken resolutions though. It’s the day of the year when I feel most acutely the passage of time. It’s inescapable. Schools are back in, at least sort of. I find myself rummaging through the closet for a vest. The atmosphere is changing by the hour, and the hours of darkness are encroaching on dinnertime. Summer is gone and the reckoning of winter is not far away. October 1 is a day of ancient cues.
But life sure feels different. A lot different. Today is a Thursday, the first day of the quarter, a normally busy day. At this moment, I am one of two humans present in an office that has workspaces for 36 people. My kids went back to school—today, seven weeks after the original start date. My family and I watched what was supposed to be a presidential debate on Tuesday, right about the time the cold front blew through, but what we saw was something closer akin to a professional wrestling promo.
There are changes blowing through the economy too, camouflaged by the tsunami of central bank support for large public companies. The notion of a “K-shaped” recovery seems to have supplanted the early notion of a “V-shaped” recovery; some companies will do fine and find their competitive positions even stronger than before. Other businesses, particularly small ones, just will not make it. I think about all the restaurants that have been barely surviving because of outdoor seating and patient landlords. The market for sidewalk tacos in December is small. And just as we are reopening this weekend here in North Carolina, COVID-19 cases are on the rise.
Today is the first day of the fourth quarter of probably the strangest year in my experience. As we look ahead to the final three months of 2020, it is as if we are gearing up for the climactic battle scene in a three-hour war movie. The audience is already completely shell shocked but there is still 45 minutes of absurdly volatile action ahead.
During a widely predicted surge in COVID-19 cases, we are going to have a presidential election, one that it almost certain not to be decided on Election Day, November 3. What will transpire is anyone’s guess but the months ahead seem likely to test the resolve of many citizens in many ways. The good news is this—we do not know who will be sworn in come January to serve the next term as president of the United States, but we do know that someone will be. For the markets, that is actually a pretty big deal. After all, markets have seen war movies before.
Four years ago, the markets got everything wrong about the election, not just who would win, but what would happen. In a wild night, futures plunged as Donald Trump declared victory, but then roared back as soon as investors began thinking about what a Trump Administration probably meant for markets.
This time, markets seem less likely to be surprised. Futures tied to the VIX Index, a measure of market volatility, suggest volatility will rise as election day approaches, will peak a couple of weeks after, and then begin to subside, remaining well above historical levels through next spring, but only slightly above where we are today. This is, broadly speaking, a bullish indicator. This suggests the markets have already priced in a historically high level of electoral indigestion and even perhaps some negative developments on the COVID-19 front. The market is pricing in some unpleasantness. It is not pricing in Armageddon, but that has been a historically bad bet.
If Rip Van Winkle awoke today and performed a cursory review of this year’s price performance, he would not have conducted a sufficiently thorough analysis to have any inkling what happened earlier this year. Rip would look at the tech-heavy NASDAQ, up about 25 percent YTD, and think, well, sure, innovation and speculation continue to go hand in hand. He would gloss right over the YTD S&P 500 and Dow Jones returns (4 percent and -3 percent, respectively), never thinking a thing. He might look at the 22 percent decline in the S&P’s financial sector and deduce that financial conditions were not in tiptop shape, and if he looked at the 50 percent decline in energy shares, he would probably ask if we had been in a recession. That would likely be the end of it. From the weather, he might not even have to ask what day it is.
The irony of the fluctuations and seasonal changes is that these cues do not really signify change, as much as they signify sameness. Yes, September is historically the worst month of the year for the markets, and now it’s gone. Yes, the dogwood in my back yard will soon be bare, but it will bloom again the week of my daughter’s birthday. Yes, I am stowing my flip-flops, but I will be looking for them in May, when I hope to eat tacos outside, somewhere. Somewhere, I will eat tacos, and someone will be president of the United States.
Today, it’s October.
Any opinions are those of Burke Koonce and not necessarily those of Raymond James. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Burke Koonce is a financial advisor at Raymond James & Associates, Inc., member New York Stock Exchange, member SIPC. www.raymondjames.com/burkekoonce