October 22 Weekly Market Update

As we get closer to election day, the market is a bit adrift and directionless. At the time of this writing, former Vice President Joe Biden has a considerable lead in the polls and, as such, investors have been weighing the potential for strong fiscal stimulus, with the possible earnings impact of higher corporate taxes. It is likely this tug of war will carry on into the weeks ahead.

From an economic perspective, home building continues to be a bright spot as U.S. home construction rose in September. Housing has recovered from the depths of the pandemic-driven lockdowns and historically low mortgage rates have helped foster demand for families seeking homes with more space. A notable surge in construction was seen in the Northeast, a sign that more and more individuals may be leaving large urban cities and heading to the suburbs.

On a less positive note, the number of new COVID-19 cases continues to surge in Europe. Lockdown procedures were reinstituted in Ireland and parts of the U.K., which has led to the closure of non-essential retail and leisure businesses. In addition, Germany hit a record high in new daily cases. As this second wave of COVID-19 cases continues to take hold and other nations consider quarantine actions, the economies of several European nations are likely to experience another economic air pocket.

While the market at large is continuing to find its way, one interesting emerging trend is that small caps, or the stocks of smaller companies, have started to show some relative signs of life in recent weeks. This is a telltale sign that investors are seeking out companies that may be most poised to benefit from some form of fiscal stimulus. These smaller businesses often only have one business line and, thus, when demand for their products or services dries up, it often leaves them in dire straits. As such, fiscal stimulus can act as a bit of a lifeline to help small companies through short-term rough patches. While inherently more volatile than their large-cap counterparts, we believe a small-cap allocation deserves consideration as a means to diversify an investment portfolio, based on an investor’s risk tolerance.

Be safe and be well.

Past performance is no guarantee of future results. The information provided here is for general informational purposes only and should not be considered a recommendation or personalized advice. There is always a risk when investing in stocks, including the potential to lose principal. Smaller companies are generally subject to greater price fluctuations, limited liquidity, higher transaction costs and higher investment risk than larger, more established companies. Diversification is an investment strategy that can help manage risk within your portfolio, but it does not guarantee profits or protect against loss in declining markets.