Markets opened the final week of October on the negative side. Global markets are under pressure on the back of rising US COVID-19 cases and renewed lockdowns across parts of Europe, election uncertainty, and stimulus negotiations that appear to have hit a stalemate.
Heading into the election, we have expected that volatility would pick up, which it has done in October during every election year since 1992. We also anticipated that the market would trade in a sloppy fashion. The acceleration of COVID-19 cases adds another layer of near-term angst. However, taking a step back, the big picture is that after rising at a record pace of 60% from the March low, the market has been entrenched in a trading range since peaking in early September.
Indeed, the market is caught up in a tug of war. Upside has been capped by election uncertainty, COVID-19 concerns, the uneven economic recovery and the stalemate on stimulus. Conversely, supporting the bottom of the range is ongoing monetary stimulus, supportive equity valuations compared to bonds and cash, rising profit trends, progress toward COVID-19 vaccines and therapeutics as well as the high probability of stimulus, even if delayed.
Importantly, as stocks have traded sideways, earnings have continued to rise. In fact, forward S&P 500 earnings estimates have been increasing at the sharpest rate since coming out of the financial crisis. That is likely to slow somewhat given the COVID-19 uncertainty, but we entered this period with momentum. With just over a quarter of companies reporting, the percentage of S&P 500 companies exceeding both earnings and sales estimates is above 80%, near record levels.
We also do not want to lose sight of the bigger picture. We advise investors to focus less on the next 10% up or down and more on the next 50% to 60%, which the weight of the evidence in our work suggests is higher. Indeed, the average bull market has lasted more than five years and gained well over 100% versus the current bull market duration of about six months and a 60% rise.
Bottom Line & Positioning
The carousel of concerns continues to turn, and markets are likely to remain choppy near term. However, we continue to favor stocks relative to cash and bonds on a 12-month basis. In our notes over the past month, we advised investors who were underweight equities to use pullbacks, such as the one underway, to average into the market—we still view that as a prudent approach.
Within equities, we are maintaining a US bias. Although there has been better price action recently, it still appears premature to endorse a value tilt given the uneven economic trends. From a sector level, we maintain our barbell approach. Currently we see consumer discretionary and technology as having the best growth prospects, which should help during some of the economic unevenness, and materials and industrials as having the best opportunity for recovery as the economy rebounds; the latter of the two would also do well if we did get more stimulus.
Although, we advise an underweight position in fixed income, high quality bonds should provide portfolio ballast, and we continue to see relative value in credit. We also still see the diversifying benefits of holding a modest position in gold as a partial hedge against COVID-19 and election uncertainty as well as US dollar weakness and growing debt.
Advisory managed account programs entail risks, including possible loss of principal and may not be suitable for all investors. Please speak to your advisor to request a firm brochure which includes program details, including risks, fees and expenses.
Investing in gold and other commodities is speculative and involves a high degree of risk and is not suitable for all investors. You could lose all or a substantial portion of your investment.
This material was provided by SunTrust Advisory Services, Inc. for use by BB&T Securities.
BB&T Investments, BB&T Scott & Stringfellow, and Sterling Advisors are divisions of BB&T Securities, LLC, member FINRA/SIPC. BB&T Securities, LLC is a wholly owned nonbank subsidiary of Truist Financial Corporation. Securities and insurance products or annuities sold, offered or recommended by BB&T Securities are not a deposit, not FDIC insured, not guaranteed by a bank, not insured by any federal government agency and may lose value. BB&T Wealth offers trust and investment management services through Truist Bank and other investment solutions through BB&T Securities, LLC.
Advisory managed account programs entail risks, including possible loss of principal and may not be suitable for all investors. Please speak to your advisor to request a firm brochure, which includes program details, including risks, fees and expenses.
Services are provided by the following affiliates of Truist Financial Corporation: Banking products and services, including loans and deposit accounts, are provided by SunTrust Bank and Branch Banking and Trust Company, both now Truist Bank, Member FDIC. Trust and investment management services are provided by SunTrust Bank and Branch Banking and Trust Company, both now Truist Bank and SunTrust Delaware Trust Company. Securities, brokerage accounts and /or insurance (including annuities) are offered by SunTrust Investment Services, Inc., BB&T Securities, LLC, and P.J. Robb Variable Corp., which are SEC registered broker-dealers, members FINRA, SIPC, and a licensed insurance agency where applicable. Investment advisory services are offered by SunTrust Advisory Services, Inc., GFO Advisory Services, LLC, BB&T Securities, LLC, Sterling Capital Management, LLC, Precept Advisory Group, LLC, and BB&T Institutional Investment Advisors, Inc., each SEC registered investment advisers. Mutual fund products are advised by Sterling Capital Management, LLC.
While this information is believed to be accurate, Truist Financial Corporation, including its affiliates, does not guarantee the accuracy, completeness or timeliness of, or otherwise endorse these analyses or market data.
The opinions and information contained herein have been obtained or derived from sources believed to be reliable, but Truist Financial Corporation makes no representation or guarantee as to their timeliness, accuracy or completeness or for their fitness for any particular purpose. The information contained herein does not purport to be a complete analysis of any security, company, or industry involved. This material is not to be construed as an offer to sell or a solicitation of an offer to buy any security.
The opinions expressed are solely those of SunTrust Advisory Services, Inc. and do not represent the opinion of BB&T Securities. This material is presented for general information only and is not intended to provide specific advice or recommendations for any individual. To determine what investments may be appropriate for you, consult with your financial advisor.
Comments regarding tax implications are informational only. Truist and its representatives do not provide tax or legal advice. You should consult your individual tax or legal professional before taking any action that may have tax or legal consequences.
Investments involve risk and an investor may incur either profits or losses. Past performance should not be taken as an indication or guarantee of future performance.
BB&T Securities shall accept no liability for any loss arising from the use of this material, nor shall BB&T Securities treat any recipient of this material as a customer or client simply by virtue of the receipt of this material.
The information herein is for persons residing in the United States of America only and is not intended for any person in any other jurisdiction.
Investors may be prohibited in certain states from purchasing some over-the-counter securities mentioned herein.
The information contained in this material is produced and copyrighted by Truist Financial Corporation and any unauthorized use, duplication, redistribution or disclosure is prohibited by law.
BB&T Securities officers, employees, agents and/or affiliates may have positions in securities, options, rights, or warrants mentioned or discussed in this material.
Asset classes are represented by indexes. An investment cannot be made directly into an index.
S&P 500 Index is comprised of 500 widely-held securities considered to be representative of the stock market in general.
©2020 Truist Financial Corporation. BB&T, SunTrust®, the SunTrust logo, and Truist are service marks of Truist Financial Corporation. All rights reserved.