September 2020 Newsletter

mature businessman reviewing his finances

Welcome to the September 2020 Newsletter. This month, we’re covering the coronavirus (COVID-19), its effect on Americans’ well-being and the economy, and other news.


We are grateful that the stock market continues to make new highs as many people’s portfolios are either fully recovered or very close to being recovered from the March lows. Many corporations are optimistic about their own near-term recovery. We anticipate the market will move higher, but not always in a straight line.

And as we said last month, we are grateful that our free-enterprise economic system of capitalism has enabled a high degree of medical science innovation. It’s helped to put us on the verge of significant advancements in therapeutics and vaccine development to fight this pandemic.

Regarding personal portfolios, our following message remains unchanged: employees should continue to make their weekly, biweekly, or monthly contributions to their employer’s retirement plan and personal and spousal IRAs. At this time, additional money can be added to an investor’s stock market allocation, but only on a dollar-cost-average basis. All portfolios remain fully invested.

The Economy

money and a plant in a jar, representing economic growth


U.S. nonfarm payrolls rose in July by 1.8 million, and the unemployment rate decreased by 0.9 points to 10.2%. The employment news is slowly but steadily improving.

The June payroll number was steady at +4.8 million. The May payroll number was revised up to +2.75 million from +2.7 million. The rolling three-month payroll average improved to +3.1 million this month from -4.4 million last month.

Gross Domestic Product (GDP)

The Bureau of Economic Analysis said the second estimate of the 2020 second-quarter GDP decreased by -31.7%. This was a slight 1.2% improvement over the first estimate last month.

September 2020 Real GDP


Annual inflation increased in July to 1.0% from June’s adjusted 0.9%, as measured by the Personal Consumption Expenditures (PCE) index. The core PCE index, which excludes food and energy, also increased in July to 1.3% from the adjusted 1.1% in June. We are a little uncomfortable saying this higher inflation is a good thing, but it really is, so long as it stays under 3%. The Fed’s long-term target remains at 2%.

Long-term inflation expectations can be determined by calculating the differences between Treasury bond yields & TIPS real yields of the same maturities. Results are:

Bond MaturitiesAnnual Inflation Expectations
5 Year1.69%
10 Year1.80%
30 Year1.84%

Thankfully, the inflation numbers above are 0.24% higher on average compared to last month’s numbers. Higher long-term inflation expectations this month are a good thing, as we must avoid our worst potential economic enemy: deflation.

Stock Market

stock market concept


The stock market is setting new all-time highs almost daily. This is due to the trillions of dollars pumped into the economy by the Federal Reserve and a variety of fiscal stimulus programs. Investors are also confident of a vaccine becoming available for at least first-responders, medical workers, and seniors. Everyone is eager for the economy and people’s lives to return to normal.

The market will not keep going up in a straight line, but we are optimistic for the rest of 2020 and 2021.

Stock Market Valuations

Investors have moved past the earnings prospects of the calendar year 2020 as they set their sights on improving earnings in 2021 and 2022. The market has performed well due to this forward-looking mindset, which has made it possible for the S&P 500 Index to push forward into record-high ground. Investor willingness to place a price/earnings ratio of 20 and even 21 on normalized 2021 S&P 500 operating earnings could push the index into the 3,600s or higher going forward.

Brokerage Houses Estimate for 2020 S&P 500 Index (as of August 20, 2020)

Goldman Sachs3600
J.P Morgan3400
Morgan Stanley3350
Deutsche Bank3250
Wells Fargo3250
Credit Suisse3200
Bank of America2900
Royal Bank of Canada2900
Union Bank Suisse2850

Recommended Action for Your Stock Portfolio

We have had a remarkable stock market recovery since the extreme lows of the market on March 23 due to the pandemic. We are looking forward to a favorable, though not straight up, remaining 2020 and the twelve months of 2021.

In the short term, you should only buy on a dollar-cost basis. Keep your stock portfolio diversified and low cost.


The World Health Organization reports nine pharmaceutical companies have progressed their vaccine testing on humans to Phase 3. Four of these companies are based in the U.S., and one is in the United Kingdom. Below is a brief summary of each company’s vaccine development.

Both Pfizer and Moderna vaccines below are using “messenger RNA” technology. Broadly, mRNA molecules ferry DNA instructions to make proteins. The vaccine mRNA molecules deliver instructions to cells to produce the protein spikes that exist on the coronavirus.

Pfizer and their German partner, BioNTech SE, completed Phase 1 trials which demonstrated neutralizing antibodies that fought off the coronavirus. The vaccine was generally well tolerated by subjects. Phase 3 testing began in the U.S. in July, enrolling about 30,000 people, and will expand overseas to include 120 sites. Pfizer aims to seek an emergency-use authorization in October.

Moderna, along with the U.S. National Institute of Allergy and Infectious Diseases, is developing a two-shot vaccine dose. Phase 3 testing is underway in the U.S. with a 30,000-person trail that could yield interim results in the fall.

Johnson & Johnson is developing a vaccine that uses a weakened form of the common cold virus. The company plans to launch a 60,000-person global study by late September. J&J will carry out the study at nearly 180 locations in the U.S. and eight other countries where transmission rates have been high.

U.S.-based Novavax began Phase 2 testing in August with a protein-based vaccine. This strategy incorporates a protein from the virus that will trigger a human immune response. The plan is for this vaccine to use two shots, administered 21 days apart.  During Phase 1 testing, the vaccine was well-tolerated and produced promising numbers of antibodies. The company said it could start Phase 3 testing in September.

AstraZeneca (a British & Swedish company) and Oxford University are developing a vaccine designed to provide protection by delivering into a person’s cells the genetic code for the spikes protruding from the coronavirus. In early testing, the vaccine successfully produced an immune response in humans with only minor side effects. A Phase 3 trial enrolling 30,000 subjects in the U.S. began in August.

These efforts are outstanding and are very likely to produce multiple safe and effective vaccines by the end of 2020, with millions of doses available in early 2021.

Virus Casualties

Fortunately, the chart below has begun to show a steady downward trend in new cases.

September's Daily New Coronavirus Cases in the U.S.

The “Daily Deaths” chart (below) also has shown a slight downward trend in the past month. Keep in mind the jerkiness of the chart is showing low deaths on weekends due to less weekend reporting by hospitals – not due to an actual lower death rate on Saturdays and Sundays.

September's Daily New Coronavirus Deaths in the U.S.

Who is the corporate bad boy this month?

This month our corporate “bad boy” is Dennis Williams, the former president of the United Auto Workers (UAW). In August, Williams and six other senior UAW officials were charged with conspiracy to embezzle money from the UAW for their personal benefit.

The charges state Williams and other senior UAW officials used UAW money to pay for personal expenses, including multi-month-long stays at private villas in Palm Springs, golf apparel, green fees, high-end liquor, meals, and cigars. They then submitted fraudulent expense forms seeking reimbursement from the UAW, supposedly incurred in connection with UAW leadership and training conferences.

Williams is the fifteenth defendant to be charged in connection with the ongoing criminal investigation into corruption within the UAW relating to illegal payoffs to UAW officials by Fiat-Chrysler Automobile (FCA) executives. The FCA executives were seeking a favorable contract with the UAW at the expense of UAW workers.

Bond Market

man pointing to the words "bond market "


Economic growth is projected to bounce back smartly in the third quarter following the -5.0% contraction in the first quarter and -31.7% contraction in the second quarter of 2020. The Atlanta Fed’s real GDP forecast for the third quarter is now +28.9%. The New York Fed’s forecast is +15.3% for the third quarter. The combined fiscal stimulus from Congress and the President, and the monetary stimulus from the Federal Reserve, are clearly working to improve our economy.

Federal Reserve

The Federal Open Market Committee (FOMC) said they are making subtle changes as to how aggressively they will fight inflation (and deflation) in the future. For example:

  • Monetary policy decisions will be informed by an assessment of the shortfalls of employment from its maximum level, as opposed to deviations from its max level.
  • The price stability longer-run inflation goal of 2% has been updated to reflect an average inflation target of 2%. This means that periods of inflation below 2% (as we now have) will require monetary policy to pursue and achieve higher than 2% inflation for a period of time equal to the time spent under 2%.

U.S. Treasury

Congress and the U.S. Treasury continue to fail at negotiating another round of fiscal stimulus for the economy. If passed, the stimulus will likely include an extension of the federal supplement to state’s unemployment benefits, as well as another round of one-time checks for qualifying recipients. Congress also has only nine legislative days in September to pass the remaining spending bills for the federal government’s new fiscal year beginning October 1, 2020.

Recommended Action for Your Bond Portfolio

The Fed’s zero-interest-rate policy has caused money market accounts to lower their interest rate from 1.7% at the beginning of the year to 0.1% or lower now. Therefore, our bond recommendations have changed, as we no longer recommend holding some excess cash. Below are our four recommended bond categories for an investor’s bond portfolio:

  • Short-term U.S. bond funds
  • Intermediate-term U.S. bond funds
  • Ginnie Mae Bond funds
  • TIPS bond funds

**Please note: Everyone should maintain a healthy emergency fund of at least 6 to 9 months of home expenses before investing in a stock or bond portfolio.**