Can We Just Get Back to …. Fundamentals?

kevin-temp2
Head of Fixed Income Strategy
Follow Kevin Flanagan
11/11/2020

I know it’s still way too early for Christmas references, but remember the line in the Grinch movie when the mayor of Whoville says, “Can we just get back to Christmas?” It kind of reminded me of what I think all investors are feeling right now, but with this twist: “Can we just get back to market fundamentals?” You know, no politics, just looking at the economic data, the Federal Reserve (Fed), rates, etc.—all that wonderfully boring stuff.

Well, look no further…

  • To the October jobs report: a solid, better-than-expected showing. Nonfarm payrolls rose by 638,000 and has now recouped 54% of the March/April plunge.
  • Private payrolls surged by 906,000, as a reversal in temporary census worker hiring and further declines in state and local government held down the gain in the overall number.
  • The unemployment rate dropped 1.0% to 6.9%, officially more than cutting in half the summer’s record high of 14.7%.
  • The jobless rate decline was a reflection of a 2.2 million surge in civilian employment overwhelming a 724,000 increase in the labor force—both positive labor market signs.
  • I have no doubt that further U.S. economic improvement could be more challenging than what investors have witnessed up to this point, but one has to admit the bounce back has been much stronger and quicker than expected. For what it’s worth, Atlanta Fed has Q4 GDP at +3.5%.
  • The Fed acknowledged as much last week, but Powell continues to push for more fiscal stimulus— another round of fiscal stimulus does seem likely in my opinion…

Fixed Income Musings

  • We still see the path of least resistance being a steeper yield curve, with credit spreads narrowing further, and would position fixed income portfolios accordingly

Unless otherwise stated, data source is Bloomberg, as of November 6, 2020.

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About the Contributor
kevin-temp2
Head of Fixed Income Strategy
Follow Kevin Flanagan
As part of WisdomTree’s Investment Strategy group, Kevin serves as Head of Fixed Income Strategy. In this role, he contributes to the asset allocation team, writes fixed income-related content and travels with the sales team, conducting client-facing meetings and providing expertise on WisdomTree’s existing and future bond ETFs. In addition, Kevin works closely with the fixed income team. Prior to joining WisdomTree, Kevin spent 30 years at Morgan Stanley, where he was most recently a Managing Director. He was responsible for tactical and strategic recommendations and created asset allocation models for fixed income securities. He was a contributor to the Morgan Stanley Wealth Management Global Investment Committee, primary author of Morgan Stanley Wealth Management’s monthly and weekly fixed income publications, and collaborated with the firm’s Research and Consulting Group Divisions to build ETF and fund manager asset allocation models. Kevin has an MBA from Pace University’s Lubin Graduate School of Business, and a B.S in Finance from Fairfield University.