COVID, The Economy, & The Election

October 2, 2020

The U.S. stock rally that began in late March of this year lost some of its enthusiasm during  September. While stocks continued to rise on an overall basis, with 3Q20 marking the third quarter in a row of gains, the three major US stock indices closed the month in negative territory. The NASDAQ finished the month down -5.11% while the S&P 500 lost -3.80%, and the Dow Jones Industrial Average dropped -2.18% for the month. 

The Federal Reserve has maintained a near zero rate policy to help with the post COVID economic recovery, and parts of the economy have rebounded nicely. The central bank has indicated that it intends to maintain low rates until such time as inflation is maintained at its objective of 2% and unemployment numbers return to pre-pandemic levels (i.e. approximately the range of 4%, which is generally considered the natural rate of unemployment and, thus, indicative of what is considered full employment). Based on the bank’s own projections, these numbers are not expected to be reached until 2023 so this low rate environment may likely be with us for quite a while.1 For the week ending September 26, seasonally adjusted initial unemployment claims fell by 36,000 from the previous week but still clocked in at 837,000. The U.S. unemployment rate during September, though continuing to trend lower than previous months, remained a stark 7.9%.2,5

This support notwithstanding, many small businesses remain shuttered. Indeed, even major industries with global concerns—especially those are largely dependent upon travel, entertainment, and events-- are still struggling mightily.  In late September, Disney announced the laying off of 28,000 employees and these cuts are centered on its parks, experiences, and consumer products division.3  Anglo-Dutch energy giant Royal Dutch Shell announced cuts of up to 9,000 employees through 2022. The firm has positioned these cuts as being in line with its goal of “net-zero” carbon emission production by 2050 but it seems clear that its approximately 10% work force reduction in the near term is a response to the continued challenges and losses from this year’s crash in oil prices.4 Announcements like these point to further challenges in an economic rebound that has already slowed after the initial bounce in May and June.

U.S. lawmakers appear to be closer to reaching a fiscal stimulus deal even as a volatile presidential debate raised concerns about a chaotic election. A fiscal stimulus package would be welcome news to a disappointed market that priced in little hope of fiscal stimulus for much of September.


As we’ve previously stated, September and October have historically ended with negative market returns, on average, during election years with October being the worst month of the year during election years.  September 2020 fell in line with these historical averages. With the election rhetoric heating up it is certainly possible October may fall in line with these averages as well.  We believe it is best to be prepared for inconsistent market price action during October with the understanding that the market has a tendency to surprise on occasion. September closed with a positive day for the markets and that could be a good sign, but we have a long way to go in this election cycle.


Entering the month of September most of our technical readings were positive as the markets had rebounded with the fastest bull market recovery ever. However, the weak market price action and unstable breadth during the month of September moved our faster moving technical measures into negative reading zones.  Our longer term technical measures remain in positive territory as of month end. We will be watching closely in October.

Brad Thompson
Chief Investment Officer

Published September 16, 2020; Accessed October 1, 2020


Published September 29, 2020; Accessed October 1, 2020

Published September 30, 2020; Accessed October 1, 2020


The S&P 500 Index is the Standard & Poor’s Composite Index of 500 stocks and is a widely recognized, unmanaged index of common stock prices.

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange.

The NASDAQ Composite is a stock market index of the common stocks and similar securities listed on the NASDAQ stock market and it is highly followed in the U.S. as an indicator of the performance of stocks of technology companies and growth companies.

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