Friday Market Musings
Well, in typical 2020 fashion, we have ourselves a contested Presidential election. So far, it seems the market is unfazed by all of the drama. We’ll see if that continues should the election result remain a mystery for days and/or weeks. Meanwhile, the following are some of our thoughts about the economy, the markets, and the Election.
What Do We Know About Tuesday’s Election? While the Presidency is still in doubt, it would appear that the makeup of Congress is more certain. The Democrats will keep the majority in the House, though the GOP made some inroads, and the GOP will keep a slim majority in the Senate. This particular outcome is what we expected and noted in our commentary last month. We thought the incumbent would retain the White House, which is still a possibility. The fact that we know the make up of Congress might be causing investors to relax somewhat as there will likely be some legislative gridlock over the next couple of years. Either way, there’s no reason to change investment strategy midstream until we know the outcome of the Presidency for certain.
Is the Economy on Solid Footing? While the job market has shown improvement throughout the COVID recovery, there has been soft patches of data periodically. This week, the ADP Private Payroll report shows that only 365,000 new private jobs were added in October, well below the 650,000 additional jobs expected. In addition, Weekly Jobless Claims disappointed by coming in higher than expected. The expectation was that claims would total only 732,000, but claims came in the same as last week at 751,000. On the flip side, the October Jobs Report exceeded expectations with 638,000 new jobs added versus 600,000 expected. In addition, the Unemployment Rate dropped to 6.9% versus only a modest expected drop to 7.7%. Manufacturing showed a continued rebound during October. Both the ISM and PMI indices showed better than expected improvement in manufacturing in October versus September. Factory orders came in higher than expected and showed improvement in October versus September. Lastly, the National Financial Conditions Index, as tracked by the Chicago Federal Reserve, continued to show that the U.S. economy is stable.
How Has the Market Responded? Despite a contested Presidential election, the market has been rather calm. In fact, the market has headed higher. Since October 30th, the S&P 500 is up by more than 7%. In 2000, the contested election between Bush and Gore saw the S&P 500 Index lose more than 1% until the Election was resolved in December of that year. It’s still early and lawsuits have already been filed so the election outcome may take a while. Regardless the market is heading higher. In addition, our Wealth Protection Signal has moved substantially lower. While the TED Spread (fear) had been relatively stable leading up to the election (+/- 2 points over the last 60 days), the VIX (volatility) has dropped by 33%. Things can change, but right now investors should keep calm.
What About That Thing Called “Coronavirus”? As I performed a quick scan over the Mainstream Media sites over the past couple of days I’ve noticed that there is not one headline on the front pages about Coronavirus. Yet, in the midst of this absence of information, Daily Cases have made new highs on consecutive days Wednesday and Thursday of this week. I get that the Election is front-and-center, but not one headline about the virus that was touted as the “end of humankind”? Daily Cases of the virus made a new all-time high (116,255) yesterday. Of course, this was on the same day that 1.54 million people were tested and over the last two weeks we have averaged more than 1.2 mil tests on a daily basis. In spite of that, deaths have NOT followed the patter of previous spikes in cases. While the 7-day average of daily cases has spiked 140% since Sept 16th, the 7-day average of daily cases has just reached the same level as Sept 16th. The spike in cases during March and June showed deaths followed suit after a 2-3week lag. That is not this case this time.
Sources: New COVID Cases and Deaths derived from The COVID Tracking Project (https://covidtracking.com/data/download).
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