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Hi Everyone, today is Friday, November 6, 2020 and this is our first market update call after the 2020 election.

There were more cases detected yesterday of the corona virus in the United States than ever before. As it doesn’t seem to go away, neither does the attention to it.

In my short career of 36 years, I can never recall a time like this, nothing more dominating so many people’s attention. There is no immediate solution in the form of a vaccine or a clear idea on the economic solution. However the market is responding to the hopes of a stronger economy, most likely in direct correlation to a vaccine in the not so distant future. Today’s news is rightly focusing more on 6, 9 and 12 months from now and a more open economy and businesses on the way back to repair. This is actually what the market is supposed to do—it’s not about today, it’s about the future, and it’s about the economy.

Whatever is happening today in the news was factored into market performance already in the past with short term volatility only creating waves over things that were not predicted. Today’s pricing of securities is an indication of where investors believe those companies should be priced based in the future, not now. As I have said over time, short term price changes negatively are due to negative short term surprises. On the contrary, for some unknown reason, as investors, we don’t seem to recognize that in upward surprises. I think that’s because when the market goes up, it meets our expectations, “Of course the market’s up,” we say to ourselves, “isn’t that what we expect it to do, isn’t that why we own securities?”

We don’t expect downturns and certainly don’t like them—although every student of the market will tell you: you have to live with both.

If you want to know what bothers me about our current times, it’s actually a topic that is rarely covered in the news and that’s interest rates. Here is the rundown of the 5-year CD as it was offered in each of the 5-year intervals over the past 20 years! When rates eventually started to rise in 2017, it seemed to signal a rise in overall rates that we could possibly enjoy in the form of CD’s. Not so!

July 2000 – 6.16%

July 2005 – 3.93%

July 2010 – 2.00%

July 2015 – .87%

Source: FDIC

Now five years after 2015—and two years after rates rose in 2017 and 2018—that same 5-year CD is paying anywhere from .35 to .55%. It was impossible to think rates could ever go lower than in 2015! The safe high yielding guaranteed investments have been ripped from our possession and left us with dividend income from stocks. So it’s no wonder we are focused on the stock market more than bond and CD interest rates because that’s where we are being fed our income! So when investors ask me what keeps me awake at 2:30 in the morning, it’s how can I find a way to guarantee the principal, increase the income and keep it flowing so investors can live at the quality of life they are accustomed to.

So let’s look at where the stock market indicators are right now: our method looks at whether supply (more sellers than buyers) are in control or if demand (more buyers than sellers) have control over the market. We also look deep into the 11 major industry groups and look at the 35-40 subsectors that make up our economy. If buyers are in control like they are now, we want to be owning stock, if sellers are in control we want to be more careful with our ownership or perhaps selling our holdings. We know we have faith in our future, but because of news items [that pull on the strings of our emotions] we tend to make decisions based on that roller-coaster rather than stepping back and looking at the processed mechanics of how that stock market roller-coaster runs.

This week's indicators . . . today’s view of the stock market is calculated this way. . . . .Our indicators begin with three large groups of stocks. These groups range in size from 2200 to 3600 companies. One group is comprised of companies that trade on the New York Stock Exchange, another is comprised of companies that trade in the Over the Counter Market and the third is a combination of those two groups. What distinguishes that third group is that it is made up of companies from each of the first two groups but only with stocks that have option agreements––that trade parallel to the stock––through the Option Clearing Corporation's exchanges.

The reason why we track large groups is because the law of large numbers is a lighthouse, if you will, as the probability of investment choice can be enhanced by tracking how the large group is changing inside. Current readings are these:

NYSE – 52.7% of the stocks are being chased by buying investors and that number is increasing—that’s positive.

OTC – 56.3% of stocks in this group are also being chased by buying investors and that number is increasing – that is positive.

The same can be said for the hybrid group that is made up of stocks that trade with options. In addition, if you’d like to look at the Standard and Poor’s index of 500 of the best US companies [which is also made up of the first two groups] 58% of those companies are being chased up in price!

Interest rates will stay low for a while—this helps companies finance the extra needs and wants they have during pandemic times as we work our way through our self-imposed recession but is an irritant to the fixed income investor who needs safe high yielding income. Someday interest rates will rise and will disappoint those companies who have to borrow but at the same time there will be smiles for safe reliable income from safe reliable sources. In every cloud there is a silver ling. There is never a free lunch—there is always a tradeoff. Not all of us are wired to accept both, but we need to take the good with the bad. We have done so forever and I guess we will do so going forward.

I want to inform you about our team, everyone is doing very well, they are all healthy and doing what they should be, taking care of themselves, taking care of their families and taking care of you. This is not the routine we signed up for, but like many, we have adapted well to our new healthier stay at home version of working. We are excited about learning how we can safely return to our offices. Currently, the Raymond James policy provides for 50% of the team to return to the office. We visit the office periodically to use special equipment or services or pick up something we left behind, but we won’t use the space for team meetings until we have the school systems working in sync with the moms on the team that do the great work for all of us, and a system is in place for maintaining the safety of where we work.

If I had one, I had fifty calls this year about what impact the election would have on the markets. One by one, I answered that market adjustments are made months before the expected event and this event was no different. It could have been in June, maybe July that the markets began to track the polls at that time, in my opinion the Republican Party influence by the time Election Day rolled around was a positive surprise that the market didn’t expect, thanks to the inaccurate polling results. For further details about the effects of the new change, please see the attached information from Larry Adam (RJ market strategist) and Ed Mills (Beltway analyst for RJ) attached to the email this transcript is part of.

Information provided is general in nature, and is not a complete statement of all information necessary for making an investment decision, and is not a recommendation or a solicitation to buy or sell any security.

The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market.

The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal.

Any opinions are those of James Schmidt are not necessarily those of RJFS or Raymond James. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. Past performance does not guarantee future results. Dividends are not guaranteed and may fluctuate.

CDs are insured by the FDIC and offer a fixed rate of return, whereas the return and principal value of investment securities fluctuate with changes in market conditions.

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