The Markets

It was a turbulent week for investors.

Waves of positive and negative news buffeted financial markets last week:

• The financial sector delivered upbeat earnings news
  Currently, many financial companies in the Standard & Poor’s 500 Index have reported third quarter earnings and have done better than expected. Despite upbeat earnings, some companies’ shares declined because of uncertainty about the path of economic recovery. If recovery continues, some banks may have excess reserves; however, if recovery falters and a double-dip recession occurs, banks may need to add to reserves, reported Barron’s.
• Coronavirus cases surged across the United States and Europe
  A rapid rise in the number of COVID-19 cases worried investors at home and in Europe. New restrictions intended to slow the spread of the virus were implemented in France and the United Kingdom. A source cited by Financial Times reported, “…economists and investors had not expected governments to allow the virus to reach the point it has now.”
• Two treatment and vaccine trials paused
  The surge of new cases was compounded by setbacks in the search for effective coronavirus treatments and vaccines. Two COVID-19 trials, one for a treatment and one for a vaccine, were temporarily put on hold because of safety concerns.
• Retail sales were strong, but manufacturing and industrial production weren’t
  Last week, economic data provided a mixed picture of the economy. On the plus side, September’s retail sales were stronger than expected despite the tapering of unemployment benefits. On the negative side, U.S. manufacturing and industrial production both came in below expectations, reported Financial Times.
• The number of Americans filing for unemployment benefits increased
  The number of people filing for first-time unemployment benefits was higher than expected, and higher than it had been for the past two weeks, even though California had temporarily stopped processing new claims. Almost 3 million people filed for extended benefits, meaning they’d been unemployed for 26 weeks or more¬¬¬. Overall, more than 25 million people relied on unemployment benefits last week.

Major U.S. stock indices eked out gains last week.

Data as of 10/16/20	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor’s 500 (Domestic Stocks)	0.2%	7.8%	16.5%	10.9%	11.4%	11.4%
Dow Jones Global ex-U.S.	-1.0%	-4.4%	2.4%	-1.0%	2.9%	1.6%
10-year Treasury Note (Yield Only)	0.7%	N/A	1.8%	2.3%	2.2%	2.5%
Gold (per ounce)	-1.0%	25.1%	28.3%	13.5%	10.0%	3.4%
Bloomberg Commodity Index	0.2%	-9.3%	-6.3%	-5.2%	-4.0%	-6.6%

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, MarketWatch, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

ONE DOLLAR IS A LOT LIKE ANOTHER, ISN’T IT?

In theory, we think of all money in the same way. In practice, we don’t.

Money is fungible. That means one dollar has the same value as another dollar or four quarters or ten dimes or 100 pennies. If you are buying something valued at $1.00, you can purchase it with $1.00 in bills or coins.

However, when making financial decisions, people tend to engage in something called mental accounting. One aspect of mental accounting is assigning labels that identify the intended purpose of money. Sometimes this decision-making shortcut can improve financial choices. Other times, it can produce a financial setback.

Mental accounting often guides spending and saving decisions
A common mental shortcut is budgeting. People and companies rely on budgets to help them make sound financial decisions. Typically, budgets allot specific amounts of income to spending and saving. For an individual:

• Spendable money may go to housing, food, utilities, clothing, entertainment, and other expenses.
• Saved money may go into emergency, vacation, retirement, or other savings accounts.

When people categorize money, they are reluctant to spend it on other things. Behavioral Economics reported, “When a resource [in this case, money] is divided into smaller units…consumers encounter additional decision points – a psychological hurdle encouraging them to stop and think…opening a partitioned pool of resources incurs a psychological transgression cost, such as feelings of guilt.”

In other words, your brain will be reluctant to spend your retirement savings on a vacation.

Some shortcuts lead to irrational financial decisions
Mental accounting is a double-edged sword. If people do not think flexibly then mental accounting can cost them. For instance, focusing too intensely on labels can result in decisions that hurt your financial position rather than help it. Kiplinger’s provided an example:

“Mental accounting leads us to hoard money in a savings account that earns 0.3 percent interest while keeping a high balance on a 15 percent-interest credit card. We like the psychological comfort we get from having money in the bank, even though transferring cash from savings to pay off a credit-card balance can essentially ‘earn’ us a quick 14.7 percent.”

Like many things, mental accounting can be helpful or hurtful, depending on how it’s applied.

Weekly Focus – Think About It

“A long habit of not thinking a thing wrong, gives it a superficial appearance of being right, and raises at first a formidable outcry in defense of custom. But the tumult soon subsides. Time makes more converts than reason.”

Securities offered through American Portfolios Financial Services, Inc., Member FINRA/SIPC. Advisory
services offered through Novem Group, an SEC-registered Investment Adviser firm, which is not
affiliated with American Portfolios Financial Services, Inc.

* These views are those of Carson Group Coaching, and not the presenting Representative or the Representative’s Broker/Dealer, and should not be construed as investment advice.
* This newsletter was prepared by Carson Group Coaching. Carson Group Coaching is not affiliated with the named broker/dealer.
* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.
* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
* All indexes referenced are unmanaged. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.
* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.
* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
* Past performance does not guarantee future results. Investing involves risk, including loss of principal.
* You cannot invest directly in an index.
* Stock investing involves risk including loss of principal.
* Consult your financial professional before making any investment decision.

Sources:

https://insight.factset.com/sp-500-earnings-season-update-october-16-2020

https://www.barrons.com/articles/jpmorgans-earnings-were-better-than-expected-heres-how-the-bank-did-51602589612

https://www.ft.com/content/93cffd8f-84ce-4160-a22e-b7d168620875

https://www.webmd.com/lung/news/20201013/johnson-johnson-pauses-covid-19-vaccine-trial

https://www.ft.com/content/b28b3c3a-8745-47ab-964c-20e09334a62a

https://www.dol.gov/ui/data.pdf

https://www.reuters.com/article/usa-economy/persistently-high-u-s-weekly-jobless-claims-point-to-labor-market-scarring-idUSKBN2701S9

https://www.cbpp.org/research/economy/policy-basics-how-many-weeks-of-unemployment-compensation-are-available

https://www.barrons.com/articles/dow-jones-industrial-average-edges-higher-on-week-as-stock-market-navigates-mixes-messages-51602894380?mod=hp_INTERESTS_technology&refsec=hp_INTERESTS_technology

https://www.merriam-webster.com/dictionary/fungible

https://www.kiplinger.com/article/investing/t031-c000-s002-mental-accounting-how-math-mind-games-bust-our-bud.html

https://onlinelibrary.wiley.com/doi/full/10.1002/cfp2.1011

https://www.behavioraleconomics.com/resources/mini-encyclopedia-of-be/partitioning/

https://www.goodreads.com/author/quotes/57639.Thomas_Paine