October 26, 2020

Weekly Market Commentary October 19th to October 23rd 2020

Housing Starts came in at 1.42 million, unchanged from last month but below estimates, perhaps reflecting some problems in terms of a tight labor market in homebuilding and supply constraints. Last month’s figure was revised downward to 1.39 million, as well. Builders continue to be extremely optimistic, as the NAHB Homebuilder Survey showed record sentiment, and Building Permits beat estimates coming in at 1.55 million, up over 5% from last month. Existing Home Sales skyrocketed 9% in the month to 6.54 million, ahead of consensus.

Initial Jobless Claims came in better than expected at 787k after a few disappointing reports. Last week’s tally was revised downward by 56k, a welcome sign. Despite a lack of current stimulus spending, the labor market is improving, and jobs are becoming available, even if they are in lower-paying sectors of the economy.

Looking at manufacturing, the Kansas City Fed regional survey came in slightly better than expected at a 13 reading, up from 11 last month. Any positive numbers indicate expansion. The closely watched Markit PMI gauge came in at a 53.3, largely matching both the survey prediction and last month’s report, above the 50 reading needed to show expansion.

Investors largely shrugged off political concerns and a rise in COVID cases this week. The market assumption that stimulus will arrive at some point, even if it’s after the election, seems accurate based on reports that the two parties agreed on key language for a bill. The S&P 500 was off a modest 0.5% for the week to 3,465. The Nasdaq Composite was down a little over 1% to 11,548.

The 10-year US Treasury yield made some waves this week, rising 10 bps to 0.84%. Bond demand was weaker on the idea that massive stimulus in the future would push up growth, as well as some optimism surrounding COVID-19 vaccines and treatments.

Next week will be busy, as we’re expecting data on New Home Sales, our first look at 3rd quarter GDP (expected to rise 31.9%), Chicago and Dallas Fed Manufacturing Surveys, and Durable Goods Orders.