U.S. stocks produced a positive return this week thanks to promising coronavirus vaccine data. Offsetting this was rising new cases across much of the country, and the need for several hotbed states to reverse reopening plans. Stimulus efforts, both fiscal (Congress) and monetary (The Fed), have helped to buoy the economy while we wait for recovery, and more will be needed. The fifth stimulus bill of this crisis is in the works, so expect big headlines over the next week as The House and Senate try to close the gap between their differing views.
Speaking of Washington, we are likely to hear lots of speculation over the coming weeks and months about what impact the upcoming Presidential election will have on the stock market. Republicans have a reputation for being more corporate-friendly than Democrats, so we are often asked if a Biden win would be bad for investments. Historically, there is no evidence of such a correlation. Statistically, the U.S. stock market has performed better under Democratic leadership in the past. But it is a small sample, and I would argue this has had more to do with the economic cycle than the electoral cycle. As a wise man at Strategic once said, U.S. corporations are clever. Regardless of who is in charge, companies have found a way to continue to be profitable and grow earnings.
The bottom line is that the election falls into that category of “prediction,” and investors should not be in that game. We are investing for the long-run; preparing not predicting. We invest in assets we believe give our clients the best chance for long-term success, regardless of who is elected. Market timing around an election, or any other uncertain event, does not typically pay off. A sound investment process should be evidence-based, relying on facts, not speculation.
Headlines this Week
Pharmaceutical companies gave investors some hope that a vaccine will be ready by the end of this year, as companies are already testing their vaccines on patients.
- The early studies in the U.S. and U.K. are showing that patients are producing antibodies to COVID-19 without serious side-effects.
The leaders in Washington are confident that agreement will be reached on a fifth stimulus bill. The House wants to extend the $600 unemployment relief while the Senate prefers to incentivize people to return to work.
- The President also wants a payroll tax cut relief and some sort of infrastructure spending.
- The relief bills are still far apart. The House is at $3 Trillion, while the Senate is at $1 Trillion, with just two weeks to get a deal done before the previous stimulus benefits expire.
- While everybody agrees that the U.S. economy needs more stimulus, especially with cases of coronavirus in the U.S. continuing to rise, leaders are having a hard time agreeing on terms.
Banks kicked off the second-quarter earnings season this week with mixed results.
- While some banks like JPMorgan Chase (JPM) and Citigroup (C) were able to beat their earnings estimates, they all took measures to reserve capital for bad loans and are preparing for more headwinds ahead.
- Banks with significant Wall Street operations benefited from profitable trading and investment banking.
The Week Ahead
All eyes next week will continue to be on the fight against COVID-19.
- Much of the economic sentiment next week will likely revolve around the viability of recent vaccine developments.
The jobs data will be in focus next week, and could once again take center-stage.
- As numerous states begin to grapple with an uptick in COVID cases amid their reopening plans, businesses may need to either cut back on hours or lay employees off once more.
Ninety S&P 500 companies are set to report quarterly results next week.
- While normally holding greater weight, due to the uncertainty most companies have experienced during the pandemic, next week’s quarterly guidance may not provide a great deal of information regarding future outlook.
The fate of the European Recovery Fund continues to hang in the balance.
- Discussions are likely to drag out into next week.
- European leaders are trying to find an agreeable solution among its members regarding its €750 Billion Euro stimulus package.
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