A Friday rally was not enough to turn U.S. stocks positive on the week. That makes the fourth week in a row that stocks declined. However, a four-week, six percent decline is nothing to write home about, particularly on the heels of a 60% rally from the pandemic lows.
We see fiscal stimulus from Congress as critical to limiting economic damage from the pandemic. While the chances of a bill look slim ahead of the election, it is encouraging that the White House and The House have indicated a renewed willingness to negotiate this week. Federal Reserve speakers have been on the talking circuit all week, pushing the need for fiscal stimulus from Congress to accompany the Fed’s monetary stimulus. Perhaps peer pressure is beginning to set in.
With the election just around the corner, we expect market volatility to pick up, and that may continue in the weeks following the election if there is not an immediate winner. Times like these play on investors’ nerves. However, investors should set emotion aside and stay invested in a portfolio that is built consistently with their ability to take on risk. Diversification and rebalancing enable us to take advantage of any volatility around the election. Besides, evidence shows investors have the odds on their side:
- The U.S. equity market has tended to rise regardless of the party in power. Much more important is the economic cycle.
- Years with a presidential election have historically yielded above average equity returns.
- Years with no presidential or mid-term election (like 2021) have yielded even higher average equity returns.
There is, of course, no guarantee that history repeats itself, but as Mark Twain said, “… it often rhymes.”
Headlines This Week
- House Democrats are working on another coronavirus relief package with a $2.4 Trillion price tag (down from the original $3.4 Trillion bill).
- House Speaker Pelosi said the new relief package is in line with what has been negotiated previously with the White House, with added support for the airline industry.
- Treasury Secretary Mnuchin’s comments from Thursday suggest that the White House has not abandoned hopes for a deal before the election.
- Initial jobless claims remain near 900K per week, as improvement in the labor market has slowed.
- Continuing claims remain on a downward trend, further declining by about 167,000. However, improvement has been slow, with continuing claims still at a very high level of 12.58 million.
- New home sales are near 2002 and 2006 levels, while the inventory of existing homes remains near an all-time low.
- Historically low-interest rates combined with low inventory are helping drive demand for new homes.
The Week Ahead
With the election a little more than a month away, the Tuesday night debate in Cleveland between the President and former Vice President Biden will be the hottest ticket next week.
- This is the first of three debates.
The monthly Jobs report on Friday is the biggest economic report and the last before election day.
- The unemployment rate is expected to read 8.3%, which would be a minimal decline from August.
- The U6 report, though, which includes underemployed and discouraged workers, is expected to move higher.
Most of the data reported will take a back seat to the Debate and Jobs report.
- The final read on the Gross Domestic Product (GDP) for the 2nd Quarter is expected to remain unchanged from previous reports.
- The ADP Employment report on Wednesday and Challenger Job Cuts report on Thursday will be used to gauge the Friday Jobs report.
- The Consumer Confidence, Personal Spending, Factory Order, Purchasing Managers Index (PMI), and Total Vehicle Sales reports are also out next week.
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