Weekly Wrap Up – September 8, 2020

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The origins of Labor Day may surprise you.

For many Americans, Labor Day marks a day off from work –  a traditional end of summer rite of passage marked by backyard barbecues, street parades (pre-pandemic of course), parties and fireworks.

As we witness history in 2020 unfold, with new protests this weekend at the Kentucky Derby and elsewhere, we offer perspective to reflect back on what was occurring in our nation just over 125 years ago…

Looking back

Massive social unrest, riots on the streets and a railroad boycott from 1894-1896 led Congress to pass a “workingman’s holiday.”

The law was an attempt to repair ties with American workers and celebrate their achievements and contributions to our society – just after the height of the Industrial Revolution.

In the late 1880s, a worker commonly worked 7 days a week and 12 hour days to earn a basic living.

Workers rebelled.

In 1894, the Pullman Palace Car Company workers went on strike to protest wage cuts. Eugene Debs called for a nationwide boycott of all Pullman railway cars that crippled railroad traffic across the nation. In 1886, the now infamous Haymarket Riot broke out in Chicago left several Chicago policeman and workers dead.

Following this explosive social unrest and in an attempt to repair ties with American workers, Congress passed an act making Labor Day a legal holiday. On June 28, 1894, President Grover Cleveland signed it into law.

You can thank an act of Congress for the fact that Labor Day always falls on a Monday.

The Uniform Monday Holiday Act of 1968 changed a number of holidays to ensure federal employees could have a three day weekend including Memorial Day, President’s Day and Columbus Day.

Last Week’s Recap – Dow Plunges

Shifting back to present day – the stock market sold off fast and furious last week as a little bit of air was let out of the technology stock bubble. Looking ahead, a hornet’s nest of challenges faces investors as the country remains in the grips of economic recession, unemployment remains high and a contentious Presidential Election is just around the corner.

Labor Market Improves…But

Last week, the government reported that the U.S. economy regained 1.37 million payroll jobs in August. That means nearly half of the jobs lost in March and April have now been recouped.

The overall unemployment rate fell to 8.4% in August, yet “the pace of job gains continues to slow, and there are already signs that the recovery could be lengthy,” said Satyam R. Panday, Ph.D. and Senior Economist at S&P Global.

Risk Appetite Wanes Heading Into Election

Investors poured money into bond and gold funds and pulled out of equities, BofA’s weekly flow statistics showed last week, as U.S. election fears curbed risk appetite, Reuters reported.

Gold has been increasingly touted by major investment firms as a “bond substitute” in the new zero-interest rate environment, which is expected to last several years at a minimum.

New Forecasts from Congressional Budget Office  

Last week, the non-partisan Congressional Budget Office (CBO) released its forecast for the next decade — this is the first analysis that includes the economic effects of the Covid-19 pandemic and the government’s response to it.

Warning. It isn’t pretty.

First key takeaway: The national debt will soon exceed the size of the economy.

Second key takeaway: It’s not just the Social Security fund that is heading toward insolvency. Covid-19 is speeding up the Medicare trust fund’s dive toward insolvency. Brace yourself. By fiscal year 2024, Medicare’s federal Hospital Insurance Trust Fund will be insolvent.

Third key takeaway: Even after the pandemic ends, the government will be saddled with large deficits resulting from a structural mismatch between spending and revenues.

Peeking Ahead at Presidential Election Outcome…

If the stock market has anything to say about it, Donald Trump may well win re-election, according to historical stock market performance data.

It turns out, how the S&P 500 Index performs in the three months leading up to the election has been a good predictor for who wins the White House, according to research by LPL Financial.

“A positive market over this period may signal an increased likelihood that the incumbent party may win, while stock market losses during the same period have tended to predict an opposition party win. The stock market returns in the three months leading up to the election have correctly predicted the election result every time since 1984, and 87% of the time since 1928,” wrote Ryan Detrick, Chief Market Strategist, LPL Financial in a research note.

Indeed, in August, the Dow Jones Industrial Average rose 7.6%.

Does last week’s sell-off mean the tide is turning? Clues to the outcome of this presidential election could lie in the stock market’s performance in September and October.

The election results may well be a coin toss at this point, despite contender Joe Biden’s lead in the polls. The financial markets don’t like uncertainty and uncertainty is what they will get over the next nine weeks.

Bottom line: Expect stock market volatility and perhaps a deeper correction and price plunge in the weeks ahead.

Precious Metals

The gold and silver markets continued to consolidate last week – both still posting double-digit, stellar gains on the year. Silver remains a leader up 46% year to date, while gold is up 25%. That compares to a 6% gain in the S&P 500 year to date and a 0.72% return on a U.S. 10-year Treasury note yield.

Precious metals remain the best investment in town for today and tomorrow.

Our Spirit Prevails

The pandemic of 2020 has been challenging for us as individuals and our nation in so many ways. Yet, the American spirit always prevails. From the seeds that our Founding Fathers planted over 200 years ago to grow our democracy – we have grown into the biggest economy in the world. Our entrepreneurial spirit, work ethic and optimism that we can create a better life will continue to propel our country forward this month, next year and into the next decade.

In the midst of this crisis, investing in gold is a proven method to diversify your portfolio and protect and grow your wealth. We are here for you if you’d like to discuss current market conditions and if changes to your portfolio allocations may be appropriate to hedge against the risks that lie ahead.

Best Wishes!


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