Market Outlook - Fourth Quarter 2020
4th Quarter Outlook
Markets have been walking a fine line, with a still-struggling economy on one side and hopes for a COVID-19 vaccine breakthrough on the other. Heading into the fourth quarter, there are both signs of caution and some encouragement.
The largest five stocks by market cap in the S&P 500® index—Apple, Microsoft, Amazon, Facebook and Alphabet/Google—have dominated the rally in recent months. This concentration was considered a risk, because a pullback in even one of those stocks could lead to a broader market decline.
Despite the recent volatility, the top five stocks still make up about a quarter of the S&P 500’s market capitalization (and 38% of the Nasdaq’s). Keep that in mind as you hear daily market returns (positive of negative).
- GDP, down 31% in the second quarter (quarter-over-quarter at an annualized rate), is expected to gain nearly 30% in the third quarter, according to the Atlanta Federal Reserve Bank’s GDPNow forecast.
The Federal Reserve’s recently announced shift in its inflation policy likely will keep interest rates lower than originally expected. In late August, the Fed said it would move to an “average” inflation target, instead of the precise 2% level it has targeted in the past. This will continue to make the search for yield a difficult task.
Recent volatility shows how quickly market trends can shift. Appropriate portfolio diversification among various asset classes can help barrier your portfolio from the ups and downs of the market. It is a good time to review your allocation and make sure you are ready for any unforeseen turbulence.