Weekly Market Commentary November 2nd to November 6th 2020
Tuesday’s presidential election lingers on with five undecided states holding the decision in the balance as of Friday afternoon. Signs are pointing to Joe Biden becoming the 46th president of the United States, but the final outcome could take a few more days. With the Senate balance likely undecided until the January run-off in both Georgia senate races, this will likely mean more market volatility…or not. Despite the uncertainty surrounding the election results, volatility has declined since the run-up to the election. And stocks are way up for the week. There are numerous theories as to why this is the case, such as a divided government perhaps less likely to create new policies to weigh on business. Suffice to say, it has been very difficult to predict and from now until inauguration day, look for investors to potentially overreact to news flow.
The big news of the week economically relates to the workforce. Thursday saw Initial Jobless Claims come in at 751k, similar to the previous week. The good news is that it is below the recent stagnant trend of mid-800’s, but continued improvement is what the markets want to see. Nonfarm Payrolls beat expectations on Friday, coming in at 638k vs consensus of 530k. But the biggest move of the week is the Unemployment rate which dropped from 7.9% to 6.9%.
The Institute for Supply Management, or ISM, a non-profit organization that supports the supply chain management profession, released its monthly measures of both national manufacturing and services this week. On Monday, the manufacturing index beat expectations by almost 3%, coming in well into expansionary territory at 59.3%. For services, Wednesday’s release disappointed at 1% below expectations, but is likewise still expanding at 56.6%. Factory Orders came in flat to expectations, but up from the prior month at 1.1%.
Finally, the Federal Open Market Committee met this week and, not surprisingly, made no changes to interest rates. The Fed wants to stay apolitical and does not want to be perceived as influencing any electoral decisions so the likelihood of any change this month was very slim.
In financial markets, equity markets were up this week, bouncing back after last week’s trouncing. The S&P 500 finished at 3,509, up 7.2%. The tech-heavy NASDAQ ended at 11,895, up 8.9%. In the fixed income markets, Treasuries rallied across the curve for the week with the 2-year, 10-year, and 30-year yields all finishing slightly down. The 2-year closed at 0.16%, the 10-year at 0.82%, and the 30-year at 1.60%.
A quieter upcoming week for key economic data releases including Weekly Jobless Claims and CPI/PPI inflation data. We should also have more clarity into the elections as states continue to count ballots.