Stimulus talks led investors in a merry dance last week.
So far in 2020, stock markets have been sensitive to fiscal stimulus. Last week, there was optimism a new stimulus package could be negotiated before the election. There also was skepticism about whether it would happen. An expert cited by CNBC stated, “There’s a lot of back and forth on stimulus and every headline makes the market move a little bit, but there’s no follow-through because we don’t have a clear picture on that front.”
Economic data didn’t provide a clear picture either. Some data points suggested economic recovery was continuing, while other information indicated the pandemic was impeding economic growth. For instance:
- Demand for services was up. The IHS Markit Purchasing Manager’s Service Index, which measures the performance of healthcare, technology, and hospitality businesses, showed better-than-expected improvement. The index was at 56. Any reading above 50 indicates expansion, reported Barron’s.
- It was a seller’s market for homes. Low interest rates combined with the space requirements of remote work and online learning have led to high demand for homes. Typically, a balanced housing market has a 6-month supply of existing homes for sale. At the end of September, there was a 2.7-month supply, per Barron’s.
- Corporate earnings were better than expected. About one-fourth of the companies in the Standard & Poor’s (S&P) 500 Index have reported earnings so far. More than 80 percent have reported better-than-expected results. Stronger profits suggest companies are recovering; however, FactSet reported this is “the second largest year-over-year decline in earnings since Q2 2009.”
- Unemployment claims slowed but remained higher than normal. There were fewer new claims for unemployment benefits in last week’s report. However, the number of unadjusted initial claims is relatively high (756,617 in 2020 vs. 186,748 in 2019), reported the Department of Labor. Overall, more than 23 million Americans filed for unemployment benefits.
- Consumers were discontent. The University of Michigan’s Consumer Sentiment Survey showed consumers were concerned about current economic conditions. Sentiment was down 25 percent year-over-year. Richard Curtin, director of the survey, believes current discontent may continue into 2021.
- COVID-19 cases spiked higher. A significant obstacle to economic growth is the virus. Last week, the number of coronavirus cases spiked. There were more than 83,000 new cases in the United States on Friday and 914 deaths, reported Johns Hopkins Coronavirus Resource Center.
Major U.S. stock indices finished the week lower.
The Election is Almost Here. Apprehension about the election has many people worrying about how financial markets may be affected by the outcome. Here are some thoughts to ponder:
“Election years are not often the best times for stock market investors. Over the past 90 years shares included in the S&P 500, an index of America’s biggest firms, have returned an average of about 8.5 percent a year. The 12 months leading up to each of the 22 presidential elections in that time have been leaner affairs, returning just 6 percent…The democratic cycle, for all its virtues, tends to bring with it a dose of uncertainty – first about who will win and then about what that victor will do. And uncertainty tends to make financiers nervous.”
--The Economist, October 10, 2020
“Many investors who ask questions about the election and its market impact seem to be looking for easy answers; or a clear and consistent relationship between variable X (in this case the election) and market performance. That does not happen with consistency when comparing economic variables, sentiment conditions, earnings growth rates, valuations, etc., to market performance…and it certainly doesn’t happen with politics and the market.”
--Liz Ann Sonders, Chief Investment Strategist, Charles Schwab & Co., October 5, 2020
“What seems reasonable is to expect some lift in bond yields from their historic low levels. Just a return to normalcy, once a vaccine is developed and widely available, ought to raise yields from their preternaturally depressed levels.”
--Randall Forsyth, Columnist, Barron’s, October 23, 2020
“Politics can bring out strong emotions, but an election has not significantly changed the direction of market movements, historically.”
--Chao Ma, Global Portfolio and Investment Strategist, Wells Fargo, October 20, 2020
Possibly the most important thing investors can do is stay focused on long-term financial goals and avoid making changes based on short-term fears.
Weekly Focus – Think About It
“The man who is a pessimist before 48 knows too much; if he is an optimist after it, he knows too little.”
--Mark Twain, Author and Humorist
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https://www.bloomberg.com/news/articles/2020-10-24/pelosi-mnuchin-trade-blame-as-pre-election-stimulus-hopes-dim (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/10-26-20_Bloomberg-Pelosi_Mnuchin_Trade_Blame_as_Pre-Election_Stimulus_Hopes_Dim-Footnote_1.pdf)
https://www.barrons.com/articles/global-equities-are-rising-stimulus-talks-are-all-that-matters-51603447358?mod=hp_LEAD_1_B_1 (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/10-26-20_Barrons-Stocks_End_Week_with_Losses_Snapping_Three-Week_Winning_Streak-Footnote_3.pdf)
https://www.barrons.com/articles/3-3-million-receiving-pandemic-unemployment-benefits-51603443601 (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/10-26-20_Barrons-3.3_Million_Receiving_Pandemic_Unemployment_Benefits_and_Two_More_Numbers_to_Know-Footnote_4.pdf)
https://www.economist.com/finance-and-economics/2020/10/10/how-investors-are-hedging-against-possible-election-chaos-in-america (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/10-26-20_TheEconomist-How_Investors_are_Hedging_Against_Possible_Election_Chaos_in_America-Footnote_10.pdf)
https://www.barrons.com/articles/what-a-blue-wave-could-mean-for-the-bond-market-51603498778?refsec=up-and-down-wall-street (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/10-26-20_Barrons-What_a_Blue_Wave_Could_Mean_for_the_Bond_Market-Footnote_12.pdf)