Markets, Economy

Weekly Kickstart (11/09/2020-11/13/2020)

11/9/20 8:00 AM

iStock-626627280.jpgStocks rebounded last week, as the S&P 500 rose by 7.32 percent to 3,509.44. That left the benchmark index up 8.63 percent 2020-to-date, and just 1.99 percent below the all-time closing high. Investors generally ignored the deluge of economic data and another monetary policy announcement from the Federal Reserve and instead focused on the outcome of Tuesday’s election. With respect to Congress, Republicans outperformed pollsters’ predictions in both chambers and even managed to gain ground in the House. The final makeup of the Senate, though, is still unknown due to runoff elections set to occur in January. President Trump also exceeded the media’s expectations but only enough to make it a close race so that for most of last week there was no official winner declared. One may wonder how it was possible for stocks to rally as much as they did without there being any certainty on who would be leading the country. One likely reason, as we pointed out in earlier Kickstarts, is that most traders worried about an adverse market move had probably hedged their positions, so any knee-jerk selling would be limited, at least in comparison to what we saw in Q1.

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An additional “excuse” for last week’s melt-up could simply be historic performance. Indeed, since 1928 during periods when Republicans controlled the White House and both chambers of Congress the S&P 500 rose by an average of 35 percent, according to Yardeni Research, and when the Democrats were in charge the broad index typically gained 56 percent (although party outperformance flips post-WWII). Divided governments, however, have historically been the ideal outcome for markets, with the S&P 500 rallying 60 percent on average during such periods. Gridlock has likely been the best environment for equities because it implies a lower likelihood of big legislative changes, as well as a greater reliance on the more nimble Federal Reserve to manage economic shocks. So the price action last week was perhaps investors responding to the potential for continued gridlock, although it is worth noting that (somewhat surprisingly) since 1900 there has never been a session of Congress with a Democratic President, Republican Senate, and Democratic House. Further, even if the mid- and long-term outlooks remain bright for equities this does not mean volatility could not return in the near-term, especially after all of the forced buying seen last week despite many still looming macro unknowns. Any regular investors uncomfortable navigating such an environment may therefore benefit from using the latest rally as another opportunity to review their positioning and 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 productivity growth remained elevated, corporate layoff announcements fell, small business hiring firmed, nonfarm payrolls growth exceeded analysts’ estimates, the national rate of joblessness declined for the sixth consecutive month, and most gauges of manufacturing and service sector activity firmed. As for the negatives, mortgage applications decreased, construction spending slowed, and an alarmingly high number of Americans continued to make first-time claims for unemployment benefits. This week the pace of economic data slows considerably but there are still a few important reports on small business, consumers, employment, and inflation scheduled to be released, along with a handful of speeches from Federal Reserve officials.

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What To Watch:

Monday

  • 3-Yr Note Auction 1:00 PM ET
  • Loretta Mester Speaks 1:30 PM ET
  • Patrick Harker Speaks 2:20 PM ET

Tuesday

  • NFIB Small Business Optimism Index 6:00 AM ET
  • Eric Rosengren Speaks 10:00 AM ET
  • JOLTS 10:00 AM ET
  • 10-Yr Note Auction 1:00 PM ET
  • Randal Quarles Speaks 2:00 PM ET
  • Eric Rosengren Speaks 4:00 PM ET
  • Lael Brainard Speaks 5:00 PM ET

Wednesday

  • MBA Mortgage Applications 7:00 AM ET

Thursday

  • CPI 8:30 AM ET
  • Jobless Claims 8:30 AM ET
  • Jerome Powell Speaks 9:30 AM ET
  • Atlanta Fed Business Inflation Expectations 10:00 AM ET
  • EIA Petroleum Status Report 11:00 AM ET
  • 10-Yr TIPS Announcement 11:00 AM ET
  • 20-Yr Bond Announcement 11:00 AM ET
  • 30-Yr Bond Auction 1:00 PM ET
  • Fed Balance Sheet 4:30 PM ET

Friday

  • PPI-Final Demand 8:30 AM ET
  • Consumer Sentiment 10:00 AM ET
  • EIA Natural Gas Report 10:30 AM ET
  • Baker Hughes Rig Count 1:00 PM ET
 

 

Sources: Econoday, Yardeni, LPL, BIG, FRBSL

Post author: Charles Couch

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