Investors received more tricks than treats this week, with the U.S. stock market falling close to 6%. Bonds and gold did their part, providing stability in diversified portfolios. Between the impending election and COVID case growth, investors had a lot on their plate, and some volatility should be expected.
On COVID, confirmed new cases hit an all-time high in the U.S. and parts of Europe. Thursday’s new case number hit 90,000 in the U.S. It should be noted that these are confirmed new cases, and scientists believe back in March, there were a very large number of unconfirmed cases. So is the data bad, yes. Is it as bad as it was in March? No. However, expectations are that this second wave will peak in January, so we still have a long haul. As unfortunate as the current trends are, the silver lining is that we are one day closer to a vaccine and a return to a normal economy with every day that passes. It may be well into next year until things start to really feel normal, but the stock market is forward-looking and will begin to reflect that normality well before it arrives.
Election day is finally upon us. For investors, the best result is likely a clear winner, while the worst result would be a protracted and contested election. Many states will be counting mail-in ballots well after election day. However, there is a chance that if certain swing states which count mail-in ballots ahead of time (Florida, Arizona, North Carolina, Nevada) all swing in one direction, voters will know the result Tuesday, even if the final tally takes longer. But with polls close in those states, investors should be braced for a longer-than-normal count. The uncertainty will undoubtedly generate volatility, but a diversified portfolio with positive factors at the core is built to weather the ups and downs. We see volatility as an opportunity and will be looking to capitalize through regular rebalancing and tactical asset allocation.
Headlines This Week
- House Speaker Pelosi and President Trump have expressed an interest in passing additional fiscal stimulus packages right after the election.
- With short-term interest rates near zero, the U.S. Fed is low on ammunition, as the central bank has reiterated in the past that they do not believe negative short-term rates are an effective tool to stimulate the economy.
GDP and Consumption
- Third-quarter GDP rebounded over 33% from the second quarter’s drop of -31.4%.
- Since spring, personal consumption has remained strong, helping GDP beat the street’s estimates as people went back to shopping.
- However, year-on-year, GDP is still down 3.5%.
- Along with house sales, goods like cars, furniture, outdoor goods, dishes, computers, televisions, and many other products have seen a huge increase in sales.
- Over 63% of companies in the S&P 500 index have reported earnings.
- Many sectors beat their earnings estimates, like Consumer Discretionary, Materials, Financials, and Communication Services.
- The misses are coming from the Industrials and Energy sectors.
- Thus far, on an aggregate basis, S&P 500 companies have reported an earnings decline of about 6.5% for the third quarter.
The Week Ahead
Tuesday is election day, but this year is unlike prior years in that early voting and mail-in voting certainly has the potential to create additional and unexpected levels of anxiety.
- A prolonged wait to find out results is the greatest fear, maybe more so than who the winner is.
- While the top of the ticket will be the focus, congressional races, and more importantly, the Senate battles will be significant.
- The Senate races to keep an eye on include: both seats in Georgia, Arizona, Colorado, Iowa, Maine, Michigan, North Carolina, and the high profile battle in South Carolina, where Senator Lindsey Graham is fighting hard to defend his seat.
All treats, No tricks!
The Federal Reserve Bank, Bank of Japan, Reserve Bank of Australia, and Bank of England all have rate decisions.
- With rates already low, markets are awaiting what stimulus treats these banks can serve up to help their respective economies.
The monthly jobs report (Non-Farm Payroll) will be out Friday.
- Expectations are for 850,000 new jobs created in October, and the unemployment rate drops to 7.7%.
- Since the report is after the election, it may be less perused than the one issued for September.
The economic calendar includes the Institute of Supply Management PMIs, Factory Order, Total Vehicle Sales, Trade Balance, and Weekly Jobs report.
- Data points will be key to determine how rising Covid-19 numbers are flowing into the economy but will be overshadowed by the Election.
Saturday is not only Halloween; it is also a full moon and daylight savings.
- Enjoy the treats, and don’t forget to set the clock back an hour.
- Happy Halloween!
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