Maintaining a Long-Term Focus Amidst Market-Shaping Events

MARKET COMMENTARY

Maintaining a Long-Term Focus Amidst Market-Shaping Events

3rd Quarter 2020

Even though September interrupted a five-month winning streak for the equity markets, the third quarter of 2020 was rewarding for investors, continuing the recovery which began in April. Taken together, the major indices generated a return of more than 25 percent over the two summer quarters. The Nasdaq in particular continued its dominance, returning nearly 44 percent over the last six months.

Fueling this stock market rally is monetary stimulus and an economy that is recovering at a rate faster than most predicted at the start of the pandemic. Large growth companies continued their market dominance, boosted by compelling earnings reports. Many of these companies are well-positioned for the post-pandemic economic landscape that will undoubtedly feature some type of new economic normal. Within the third quarter, the Federal Reserve approved a shift in how it will set interest rates. This policy shift was a major catalyst for equities as it signals that interest rates will be subdued for an extended period.

The final quarter of 2020 has the potential to offer more market-shaping events than any quarter in recent memory. Investors with the internal fortitude to remain true to their investment disciplines will likely fare best during this uncertain time.

Market participants will continue to closely monitor the efforts to develop a COVID-19 vaccine and therapeutical treatments. In addition, economists will be observing the potential for an uptick in cases as the weather turns colder. A new Supreme Court justice will be contentiously debated and likely confirmed by the Senate. Congress will continue to deliberate over additional economic stimuli to prevent major layoffs by those industries hardest hit by the pandemic.

Without question, however, the most significant event for the markets will be the November elections. Generally speaking, the stock market is not partisan. Markets have historically done well with Democrats and with Republicans in the White House. Given their druthers, investors would prefer that one party does not control both branches of Congress and the executive branch. However, the prospect of a contested election where we may not know the final results for days or even weeks injects the most uncertainty and investor consternation. Should this come to fruition, market turbulence will likely follow.

Given this uncertain backdrop, investors need to brace for volatility in the fourth quarter.

Attempting to speculate on the direction of these events and their market impact is futile. Riverbridge continues to maintain our long-term perspective and will not make decisions based on near-term events and their potential to disrupt the markets.

Our investment team will continue to identify and invest in businesses that are both resilient and adaptive. These are the types of companies that will thrive in our eventual new economic normal.

Information in this newsletter is not intended to be used as investment advice. Mention of companies/stocks herein is for illustrative purposes only and should not be interpreted as investment advice or recommended securities. The securities identified do not represent all of the securities purchased, sold or recommended and the reader should not assume that any listed security was or will be profitable. Past performance is not indicative of future results.

Rick Moulton

Rick Moulton

CFA, Portfolio Manager

Rick Moulton

Rick Moulton

CFA, Portfolio Manager