Todd’s Take on the Market
The S&P 500 was down 5% for the week two weeks ago, then up 7% for the week last week. The NASDAQ was down 5.5% two weeks ago and last week, it rallied 9%. For the Dow, it was down over 5% two weeks prior and last week, it was up almost 7%. This is not normal!
Although the election captured the spotlight last week, we continued to receive economic data indicating the progress of the recovery. In October, total nonfarm payrolls increased by 638,000, reflecting private payroll growth of 906,000, partially offset by 268,000 fewer government jobs, of which 147,000 were temporary Census 2020 workers. The unemployment rate dropped to just 6.9%, with 11.1 million people unemployed. The labor force participation rate rose as 724,000 workers rejoined the labor force, possibly aided by the expiration of enhanced unemployment benefits. While this demonstrated solid progress, the pace of job gains has slowed the job market and is still very painful for so many as coronavirus cases rise.
Americans were expecting a wild election night, and that’s exactly what we got. Heading into the results, it was Biden’s election to lose. As early state results came in the odds skewed heavily towards Trump, but overnight and early morning the odds started to turn in Biden’s favor where they remained.
In economic news, the Employment picture turned a little darker as the ADP Private Payrolls report for October missed expectations by a wide margin as the economy created just 365,000 jobs compared to expectations for growth of 634,000.
It was supposed to be the worst of possible outcomes: a combination of years of gridlock (a Biden presidency with a Republican Senate), coupled with a contested election (which Trump is set to do by contesting state elections to the Supreme Court), was according to Wall Street a bearish trigger that could launch as much as 20% of downside to stocks.
Well, once again Wall Street was incorrect, because despite predictions ahead of the election that not having an early clear result could derail stocks, equities soared another 2% overnight rising above 3,500—up nearly 300 points from the early Sunday prints—as the prospect of gridlock provided some solace and calm, led by tech and healthcare stocks on hopes the election results won’t trigger major changes to taxes or regulations that have underpinned the bull market. In short—a continuation of the status quo for at least two more years.
As expected, Fed officials kept the monetary policy in a holding pattern, leaving interest rates near zero and making no change to asset purchases, as the final results of U.S. presidential and congressional elections remain uncertain.
As of this writing, the Dow, S&P 500, NASDAQ and Russell 2000 have soared on the prospects of Pfizer producing a vaccine. Combined with an eventual Biden victory, stocks have taken off to the moon. While it is great in stock land, bonds have suffered a one-two punch. With the economy trying to pick up steam and stocks soaring, yields on the 10-year have shot higher. The yield went from around 82 basis points to over 95 basis points, as of this writing.
Please stay tuned, we know not what will happen in the coming days.
Todd Day, MBA
Portfolio Manager
Horizon Financial Services, LLC
