economic perspective

November 2020


By Stephen Rich

Since the last Economic Perspective was published in early September 2020, the equity and fixed-income markets were relatively calm, until early November when the U.S. presidential election took place and Pfizer announced a potential vaccine to help prevent COVID-19. The equity markets subsequently rallied to hit new highs, while the fixed-income markets were more muted in their returns and continued to move modestly downward. This all comes after the first eight months of the year, which experienced both the largest contraction and the fastest recovery of the U.S. economy on record. Against this backdrop, Mutual of America Capital Management LLC explores four main issues that remain unresolved and are the most likely reasons why market volatility recently picked up again: 1) the outcome of the 2020 election; 2) the timing and rollout of a vaccine for COVID-19; 3) continued high unemployment; and 4) the magnitude and timing of another round of fiscal stimulus.

Market update

For the year to date through October 31, 2020, large-cap equities had emerged from the current crisis virtually unscathed, with the S&P 500® up 2.8%. Subsequently, an equity market rally in the first week of November saw an additional 7.3% jump in the S&P 500 Index through November 6. For the year to date through October 31, 2020, the Nasdaq and Russell 1000® Growth Indexes were solidly in positive territory, up 22.6% and 20.1%, respectively. However, the Russell 1000® Value Index and small-cap stocks were down 12.7% and 6.8%, respectively. The gap between growth and value is staggering and stood at 32.8% (after reaching a record high of 39.9% in August) between the performance of the Russell 1000 Growth Index (up 20.1%) and the Russell 1000 Value Index (down 12.7%). We believe that if equity markets continue to respond to positive economic data, the gap between growth stocks and value stocks should diminish.

The fixed-income market has also been strong during 2020, with interest rates at historic lows after falling more than 1% since the beginning of the year. Demand for bonds has been strong since the U.S. Federal Reserve (Fed) announced its willingness to purchase bonds of U.S. corporations on March 23. Investment-grade bonds rallied 18.2% through October 31, as measured by the Bloomberg Barclays U.S. Corporate Bond Index, which, for the year to date through October 31, posted an aggregate total return of 6.5%. Even more impressive, the 10-year Treasury bond and 30-year Treasury bond returned 10.9% and 18.6%, respectively, on a year-to-date basis through October 31.

Companies have taken advantage of the low interest rate environment and demand for fixed-income securities and have issued a record amount of new bonds. Issuance of investment-grade corporate debt in 2020 surpassed $1.6 trillion during October, which is the fastest pace on record. As context, over the full year of 2019, a total of $1.1 trillion in new debt was issued. The new issuance in the primary market has been facilitated by cheap financing costs, as well as the Fed’s continued support of the credit markets with a guaranteed backstop for corporate bond buyers.

Presidential election

While the outcome of the U.S. presidential election remains unofficial more than two weeks after the election on November 3, according to the Associated Press, former Vice President Joseph Biden surpassed the 270 votes needed from the Electoral College, which actually is responsible for electing the president. President Trump, along with his campaign and some Republican leaders, are disputing the election results, and the president is pursuing legal challenges to the vote count in a handful of swing states. Meanwhile, Biden is beginning to form a government and has taken calls from various world leaders congratulating him on his apparent victory. As for Congress, in the Senate, following the election, Republicans have won 50 seats and Democrats 48, with a runoff election for both of Georgia’s Senate seats scheduled for January 5, 2021. The results of the Georgia runoff will decide control of the Senate for the next two years. In the House of Representatives, although Democrats held their majority, Republicans narrowed the gap with a net gain of eight seats to date, with the results for eight seats still undetermined. Amid such uncertainty, including the probability that one party will not control the executive and both legislative branches, the financial markets responded favorably, likely because significant policy changes—ranging from fiscal and tax matters to energy and healthcare initiatives to expansion of the Supreme Court—would not occur in the near future. Finally, out of this election, one major bright spot emerged: more than 150 million Americans voted, by far a record in the total number of people who cast their ballots in a presidential election. That number represents some 62% of the eligible voting-age population, which could be the highest since 1968, according to the Associated Press.


Although the U.S. has committed more than $10 billion to develop a vaccine to help prevent COVID-19 and introduced programs such as Operation Warp Speed, at this point no vaccine is approved. However, on November 9, Pfizer announced that its potential vaccine for COVID-19 was more than 90% effective based on early data. That percentage was increased to 95% on November 18, and two days later, the company submitted an application to the Food and Drug Administration to authorize its vaccine for emergency use. In addition, Moderna Inc. said on November 16 that its vaccine was 94.5% effective and also planned to apply for emergency authorization. Oxford-AstraZeneca announced encouraging preliminary data for its vaccine on November 23 and Johnson & Johnson continues to develop a fourth vaccine. That said, it appears unlikely that a vaccine will be widely available to the general public until 2021. At the same time, with colder weather arriving and winter on the horizon, infections are rising in the U.S. and around the world. In Europe, many countries are placing new restrictions on their citizens and businesses. On October 29, 2020, government leaders in France and Germany announced that bars, restaurants and nonessential services will be closed until December 1. In addition, England imposed similar restrictions through December 2, Spain announced a nationwide curfew and Italy recently introduced its strongest restrictions since May. The end of the crisis will not be quick or easy. Vaccines may slow deaths among the most vulnerable individuals, but the logistical, production and public-education challenges of immunizing some 60% to 70% of the population—the rate the World Health Organization says it needs to achieve herd immunity—may take years.


Since our last report, the price of gold retreated, especially after news from Pfizer about its potential vaccine; however, it is still in demand as investors bet that central banks and governments will continue massive stimulus measures to support economies impacted by COVID-19. Prior to a $100 plunge on November 9, before regaining its footing, gold bullion had gained more than 23.8% this year through the end of October and hit an all-time high of $2,064 per ounce on August 7. Investor interest in gold comes from a host of investment angles, including a weakening dollar from massive stimulus, the fear that inflation will rise and geopolitical uncertainty.

As for oil, West Texas Intermediate (WTI) crude futures rallied on news of the potential vaccine to move back above $40 a barrel. That said, for the year to date through October 31, it was down 36.6%. Demand for oil has been hurt by both the shuttering of economies to combat COVID-19 and a perceived pivot away from fossil fuels in the future. As a result, there were only 282 oil and gas rigs operating in the U.S. as of October 16, 2020. This trend is not improving—in 2019, the U.S. had 855 rigs in operation; in 2015, there were nearly 2,000. At the time of this report, WTI crude futures were trading at about $40 a barrel, after starting the year at $58. On a more positive note, there has been an uptick in mergers and acquisitions in the energy sector, including Chevron acquiring Nobel Energy Inc., Pioneer Natural Resources acquiring Parsley Energy Inc., ConocoPhillips acquiring Concho Resources Inc. and Devon Energy Corporation acquiring WPX Energy Inc.

Labor markets improve

The labor markets continue to show improvement, even though the absolute levels of both initial unemployment claims and total unemployment numbers are enormous relative to pre-COVID-19 levels. Since peaking at just under 6.9 million weekly initial jobless claims on March 28, this number continues to decline. The report of 742,000 claims for the week ending November 14, marked the twelfth consecutive week that this number has been below one million. Since May, more than 12.0 million new jobs have been added back to the economy, accounting for about 55% of the jobs lost during the pandemic. For example, nonfarm payrolls continue to provide positive surprises, with nearly 661,000 jobs added during September and another 631,000 in October. Overall, the unemployment rate continues to decline—from a high of 14.7% in April to 13.3% in May, 11.1% in June, 10.2% in July and 8.4% in August, before dipping further to 7.9% in September and 6.9% in October—though the most recent rate is still nearly double pre-COVID-19 levels.*

Despite unemployment, consumer is strong

Perhaps most impressive is the strength of the consumer, notwithstanding bankruptcies this year of such storied retailers as Neiman Marcus, J.C. Penney, Brooks Brothers, J.Crew and Lord & Taylor. While consumer spending is down in department stores, as well as for apparel and gasoline, by contrast, internet sales of home furnishings, groceries and sporting goods have surged. Despite the large number of workers who have been laid off, massive government programs (especially the $600 weekly incremental unemployment benefit program that ran from April through July as part of the CARES Act) have put money in people’s pockets to spend. Consumer confidence has returned to its highest level since March according to the Conference Board Consumer Confidence Index. Another bright spot is auto sales, with purchases of U.S. light vehicles rising for the last five consecutive months. In September, U.S. car and light truck sales reached an annualized rate of 16.4 million units, which is back to prepandemic levels.

Gross Domestic Product

Another strong, if somewhat surprising, data point in the economy emerged with the first release of Gross Domestic Product (GDP) results for the third quarter of 2020. After falling 31% in the second quarter, GDP rebounded a robust 33% in the third quarter. Three months ago, economists were penciling third-quarter growth at 18%. In terms of dollars, the third-quarter output was $18.6 trillion, which is still below the output of $19.3 trillion from the fourth quarter of 2019. That said, a confluence of factors helped the economy heal more quickly than anticipated, including the easing of COVID-19-related lockdowns; the strength of the housing market; the resilience of the consumer; and, perhaps most important, the government’s stimulus program.


The much-talked-about fifth government stimulus package continues to face headwinds, especially with the outcome of the presidential election in dispute. U.S. House of Representatives Speaker Nancy Pelosi and U.S. Treasury Secretary Steven Mnuchin are unable to narrow the $500 billion gap between their two plans—Pelosi’s plan is seeking $2.4 trillion in aid while Mnuchin’s stands at $1.9 trillion. Even if the two could find common ground, U.S. Senate majority leader Mitch McConnell only had support for a $500 million aid package. What seems clear is that a stimulus package is needed, especially because the benefits of the CARES Act are ending. One economist cited by Bloomberg News estimates that a failure to deliver more relief will mean $1.2 trillion less in U.S. economic output by the end of 2023. The U.S. Census Bureau, which has been surveying Americans on the economic impact and other effects of the COVID-19 pandemic, reported that 32% of respondents are having “some” or “a lot of” difficulty paying for typical household expenses. That percentage increases to 56% when including those reporting “modest” difficulty, to 64% when including families with children and to 83% when including those who report having poor health. With no new federal aid, these statistics are likely to get worse.

Mounting debt

The U.S. budget deficit tripled to a record $3.1 trillion in the fiscal year that ended September 30, 2020, as the government supplied stimulus to battle the pandemic—the bulk of which was enacted in the $2.2 trillion CARES Act. That represents approximately 15.2% of economic output, the largest since 1945 when the government was financing military operations to fund World War II. Moreover, 2020 was the fifth consecutive year in which the deficit increased as a percentage of GDP, according to the Congressional Budget Office. When added to the existing federal debt, this number tops $20 trillion, which is 102% of GDP, according to the Committee for a Responsible Federal Budget. This is the first time the debt has exceeded the size of the economy for the full fiscal year in more than 70 years. This ratio puts the U.S. in the same category as Greece, Italy and Japan, which are among the world’s most heavily indebted nations. This is becoming a precarious situation as the U.S. struggles to strike the right balance between too much stimulus and too much debt.


The first eight months of 2020 led to various extremes as a result of the impact of COVID-19. From a historical perspective, the U.S. economy experienced the largest contraction ever in GDP, the most rapid fall in the stock market, the largest cuts to companies’ earnings projections and the most unemployment filers. The economy also experienced the largest fiscal and monetary stimulus in history, the largest snapback in employment and a stock market rally that reached all-time records. Beyond COVID-19, the U.S. has witnessed civil unrest, increased tensions with China and a contentious and divisive presidential race that has exposed serious divisions among Americans. As for the financial markets, valuations in equity markets, especially those in the growth area, are trending toward record highs. The offset to these lofty valuations is that interest rates are at historic lows, and the Fed seems committed to keeping them pinned to zero for years to come. We believe Congress ultimately will approve a fifth stimulus bill to help individuals, many of whom are permanently displaced from their jobs. As a result of both fiscal and monetary support, we are optimistic that the economy will continue to show improvement in the coming months. As the economy heals and when a vaccine is finally approved, we would expect to become more optimistic about the outlook for U.S. stocks, especially value-oriented stocks that have lagged in the equity market’s recovery this year.

Stephen Rich is the President and CEO of Mutual of America Capital Management LLC.


Bureau of Labor Statistics.

Past performance is no guarantee of future results. The index returns discussed above are for illustrative purposes only and do not represent the performance of any investment or group of investments. Indexes are unmanaged and not subject to fees or expenses. The index returns above reflect the reinvestment of distributions. It is not possible to invest directly in an index.

The views expressed in this article are subject to change at any time based on market and other conditions and should not be construed as a recommendation. This article contains forward-looking statements, which speak only as of the date they were made and involve risks and uncertainties that could cause actual results to differ materially from those expressed herein. Readers are cautioned not to rely on our forward-looking statements.

Mutual of America Capital Management LLC is an indirect, wholly owned subsidiary of Mutual of America Life Insurance Company. Securities offered by Mutual of America Securities LLC, Member FINRA/SIPC. Insurance products are issued by Mutual of America Life Insurance Company.

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