October 2020 market had both tricks and treats for investors. Overall, equity markets moved lower for the second month in a row primarily because of investor reactions to Congress’ inability to come together on a coronavirus relief package for unemployed workers and disproportionately affected companies, and renewed fears of another economic downturn due to the recent surge in COVID-19 infections. The broader equity market represented in the S&P Composite 1500 was down -2.3% in October. However, the smaller cap stocks in the S&P Mid Cap 400 and S&P Small Cap 600 indexes were both up +2% and +2.5% respectively.
Looking at the index return solely at their month-end valuations doesn’t give the whole story though. Through the first three weeks in the month, the S&P 500 treated investors with +3% gains as investors bid up the market with anticipation of additional economic stimulus. However, in the last week of October, it became clear there was no stimulus agreement and it tricked investors by losing almost -6% before closing down -2.8% in the month.
The real story is in the small cap stocks and value stocks. Small Cap’s index leading gains in October was a reversal from their performance in September when they lost the most ground. Investors counted on an economic relief package that would benefit Small Cap companies doing business primarily here in the US. Although a package hasn’t come at this point, investors appear to remain hopeful for it to arrive after the election is over and Congress returns to work. Value stocks reversed Growth stocks’ recent strangle-hold on higher returns by gaining ground across all capitalizations. Small Cap Value stocks fared the best by gaining almost 3% more than its Growth counterparts.
International equity markets were mixed. Developed Markets lost 3.6% while Emerging Markets gained 2% during October. Both markets are still negative YTD.
Global fixed-income securities saw little movement with US investment grade bonds down slightly -0.2% and World Government Bonds (ex US) up slightly +0.3%. At month-end, the yield on the 10 Year Treasury stood at 0.88% up 19 bp from the end of September.
At Wiser Wealth Management, we act as fiduciaries investing our clients’ money relative to their investment objectives and not the whims of the markets. Short-term fluctuations in stock and bond valuations are already factored into our return assumptions and how we construct investment portfolios. As such, we are not making changes or alterations to any allocations or investments in our model portfolios at this time. We are confident our portfolios are positioned to produce the investment returns needed over the long-term to secure your financial freedom.
Brad Lyons, CFP®
Wiser Wealth Management, Inc.