Tim Hoyle, CFA, Co-Chief Investment Officer
thoyle@haverfordquality.com

Powell, Pandemics, & Politics

As of Monday morning, markets are adding to last week’s decline. We attribute this sell-off to Chairman Powell’s comments on Wednesday afternoon, the resurgence of Pandemic concerns, and Politics.

Following last week’s FOMC meeting, Jerome Powell held a press conference to provide both prepared remarks and answer questions. The greatest takeaway from the Chairman’s comments was that the FOMC is “not even thinking about thinking about raising rates.” This statement provided the capstone to the Fed’s relatively dour view of the economy and the potential pace of the recovery. Their outlook is not unexpected. Our opinion has long been that the path from re-opening to recovery to normalization will be difficult. Hearing the Chairman’s outlook that unemployment would still be close to 10% in December was the equivalent to throwing cold water on market bulls.

Haverford Trust Bar graph - "S&P 500 (6/8/20 - 6/12/20)". The x - axis represents 2020 dates in June, while the y-axis represents S&P 500. The graph shows peaks and valleys of the performance level.

Last week’s news cycle was also dominated by the fears of a second wave of COVID-19 cases. States across the south and west, those early to reopen their economies, are seeing upticks in coronavirus cases while the Northeast states are still experiencing rapid declines in case counts. White House officials have made it clear they believe it is time to prioritize the economy and manage the health concerns, as opposed to the past three months when officials prioritized the pandemic while putting the economy on life support. But D.C. has very little influence into how individual states tackle these issues and the market is very focused on the probability of a second round of shutdowns. At Haverford, we still believe it is important to watch hospitalization rates, and not just case counts. Unfortunately, this data can be more spotty, anecdotal, and lag case data by a few days. It is our hope that more cases do not result in spikes in hospitalization and that the original intent of the Great Lockdown, to bend the curve and provide time for the health system to adapt, is still successful. Haverford will provide further updates as we receive more data on hospitalizations and case rates.

US Coronavirus Hot spots: Change in Number of Cases (past two weeks). In this map, cases have risen more on the southern-east coast .
Source: New York Times

Lastly, President Trump’s reelection prospects have tumbled during the past few weeks. Regardless of political orientation, a majority of professional investors believe that equities would prefer a Trump second term over a Biden presidency. At Haverford, we are not yet going to wade in to this debate, except to remind our clients that politicizing investing is a sure-fire recipe for making bad decisions. The historic precedent does not weigh favorably on the President’s re-election chances.

Source: Strategas