Markets, Economy

Weekly Kickstart (10/26/2020-10/30/2020)

10/26/20 8:00 AM

iStock-626627280.jpgStocks were under pressure last week, as the S&P 500 fell by 0.53 percent to 3,465.39. That still left the benchmark index up 7.26 percent 2020-to-date, and just 3.22 percent below the all-time closing high. The price action remained choppy during the past few trading sessions, with CARES 2.0 headlines continuing to be the main driver of the intraday swings. Volatility could easily pick up again this week due to a combination of month-end rebalancing and larger investors finalizing any portfolio adjustments ahead of the November elections. In fact, recent VIX derivatives pricing suggests that traders anticipate a period of elevated volatility that could stretch well into November and even parts of December. This suggests concerns of a voting outcome not being certain on election night, although such worries appear to have moderated considerably compared to a month ago. Other market sentiment shifts that occurred since September can be seen in the latest BAML fund manager survey.

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Confidence in a V- or U-shaped economic recovery, for instance, cooled slightly this month while more respondents expressed expectations for a W-shaped rebound. In aggregate, though, avoiding a “double-dip” is still viewed as the base case. Moreover, the number of surveyed investors who describe the current economic environment as “early-cycle” finally exceeds those who think we are in a recession. Shifting the focus back to the election, more money managers in October than in September cited it as being the biggest “tail risk” they are concerned about, although even this close to November additional flareups in the pandemic were still viewed as the greater threat. Another thing to consider is that since the looming election and policy uncertainty are known unknowns, many traders worried about an adverse market move might have already hedged or will do so in the coming days, meaning the downside risk could be limited (less forced selling). Limited, though, does not mean eliminated, and the intraday market swings could still be violent. Any regular investors uncomfortable with the potential for a near-term spike in volatility should review their positioning ahead of time to make sure it is properly aligned with their risk tolerance, nearness to retirement, and other unique variables. As always, we are here to help with any questions you may have.

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To recap a few of the things we learned about the economy last week, the positives included that regional manufacturing gauges improved, housing starts rose, building permits increased, existing home sales surged, and homebuilder confidence hit a record high. As for the negatives, mortgage applications fell, and the number of Americans making first-time claims for unemployment benefits remained elevated. This week the pace of economic data picks up with several important reports on business activity, housing, consumers, and employment costs scheduled to be released, along with the government’s first official estimate of third quarter U.S. gross domestic product growth due out on Thursday.

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What To Watch:

Monday

  • New Home Sales 10:00 AM ET
  • Dallas Fed Manufacturing Survey 10:30 AM ET

Tuesday

  • Durable Goods Orders 8:30 AM ET
  • Case-Shiller House Price Index 9:00 AM ET
  • FHFA House Price Index 9:00 AM ET
  • Consumer Confidence 10:00 AM ET
  • Richmond Fed Manufacturing Index 10:00 AM ET
  • 2-Yr Note Auction 1:00 PM ET

Wednesday

  • MBA Mortgage Applications 7:00 AM ET
  • International Trade in Goods (Advance) 8:30 AM ET
  • EIA Petroleum Status Report 10:30 AM ET
  • Survey of Business Uncertainty 11:00 AM ET
  • 2-Yr FRN Note Auction 11:30 AM ET
  • 5-Yr Note Auction 1:00 PM ET

Thursday

  • GDP 8:30 AM ET
  • Jobless Claims 8:30 AM ET
  • Pending Home Sales Index 10:00 AM ET
  • EIA Natural Gas Report 10:30 AM ET
  • 7-Yr Note Auction 1:00 PM ET
  • Fed Balance Sheet 4:30 PM ET

Friday

  • Personal Income and Outlays 8:30 AM ET
  • Employment Cost Index 8:30 AM ET
  • Chicago PMI 9:45 AM ET
  • Consumer Sentiment 10:00 AM ET
  • Baker Hughes Rig Count 1:00 PM ET
 

 

Sources: Econoday, BAML, FRBSL

Post author: Charles Couch

Disclosures