Commentary provided by John Packs, Senior Investment Officer, AIG Retirement Services
Weekly Market Performance Snapshot (Week ending October 23, 2020 & Year-to-Date)
- Dow Jones Industrial Average®: -0.9% / -0.4%
- S&P 500® Index: -0.5% / +7.3%
- NASDAQ Composite® Index: -1.1% / +28.7%
- Russell 2000® Index: +0.4% / -1.7%
- 10-year U.S. Treasury note yield on October 23, 2020: 0.841%
- Up 9.8 basis points from 0.743% on October 16, 2020
- Down 107.9 basis points from 1.92% on December 31, 2019
- Best-performing S&P 500 sector this week: Communications Services, +2.1%
- Weakest-performing S&P 500 sector this week: Technology, -2.2%
Past performance is not a guarantee of future results.
Markets Hold Steady as Investors Await News on Stimulus, Elections
Stocks mostly treaded water, as investors waited for a breakthrough on stimulus talks. The 10-year Treasury yield rose above 0.8%, closing the week at its highest level since reaching 0.9% in June. Additional stimulus spending would require the government to issue more debt, raising the possibility of higher yields to entice investors to purchase the new supply. With the election just days away, market activity may remain muted as investors await the results.
- Weekly claims for initial unemployment benefits fell to 787,000, a steeper drop than expected and the lowest since the first spike in claims in March. The previous week’s unexpectedly high figure was also revised downward by 56,000. For the third week in a row, continuing claims dropped by more than 1 million and now stand at 8.37 million.
- Stimulus talks between the White House and House Speaker Nancy Pelosi continued. While the two sides appeared to be narrowing the gap on a topline number (likely in the $2 trillion range), details on how funding would be distributed, and on issues such as business liability protection, still need to be hammered out.
- White House and congressional officials have said publicly that it may not be possible to vote on a stimulus agreement before Election Day. The political considerations for passing a bill may change considerably depending on election outcomes.
- The Fed continued to raise the alarm about the risks of not passing additional fiscal stimulus. Fed governor Lael Brainard said, “Apart from the course of the virus itself, the most significant downside risk to my [economic] outlook would be the failure of additional fiscal support to materialize.”
- The Fed’s Beige Book, a collection of reports on economic conditions around the country, found that U.S. economic growth has been moving at a “slight to modest” pace, with significant variations among industries and geographies. For instance, home builders face rising demand and a shortage of supplies, while the commercial real estate sector continues to deteriorate. Consumer spending remained positive, with retail sales leveling off.
- The first reading on third quarter (July-September) U.S. GDP is scheduled to be released on October 29. Nearly all economists expect historically high growth – in excess of 30% – following the historic decline in second-quarter GDP. Forecasters anticipate that the pace of economic growth will decline sharply in the fourth quarter, especially in the absence of additional fiscal stimulus.
Google Faces Antitrust Lawsuit, While Oil Consolidation Continues
The U.S. Department of Justice (DOJ) announced an antitrust lawsuit against Google, accusing the search giant of abusing its market power to gain an advantage over competitors in the online advertising space. Major oil companies continue to adjust to low oil demand and prices. And corporate earnings are providing a window into trends in consumer behavior.
- The DOJ’s lawsuit against Google is narrower in scope than some observers had expected, focusing on payments Google makes to companies like Apple in exchange for making Google the default browser on phones and other devices.
- ConocoPhillips announced its purchase of Concho Resources, and Pioneer Natural Resources announced that it is buying Parsley Energy. Both acquirers are taking advantage of low valuations in the oil sector to improve scale and efficiency in the face of declining oil prices. Meanwhile, ExxonMobil told employees that layoffs will be coming, as the company continues to manage the effects of the global oil slump.
- Procter & Gamble may offer the best insight into the way Americans live (and shop) today. The company announced strong quarterly earnings and raised its outlook for 2021, as its household cleaning and laundry products have experienced a jump in sales. Sales were flat in P&G’s shaving products unit as many people continue to work from home.
- Southwest Airlines reported its largest-ever quarterly loss. American Airlines also reported a substantial loss. On a positive note, both airlines reported a slight uptick in passenger travel over the quarter and a slower rate of daily cash losses. For the first time since March, the TSA screened more than a million passengers on October 18. Southwest’s CEO said passenger traffic will remain low until a vaccine is widely available.
Global Virus Cases Rise, Vaccine Trials Cleared to Resume
New daily coronavirus cases in the United States topped 70,000 for the first time since July, with most states seeing a rise in cases. Europe is also experiencing another wave of cases as cold and flu season gets underway.
- The FDA formally approved Gilead’s Remdesivir as a treatment for COVID-19. The drug has been administered to patients since the spring under an emergency use authorization.
- Moderna announced that it expects results from its vaccine trial in November, which could lead to emergency use authorization in December.
- Vaccine trials by AstraZeneca and Johnson & Johnson have been cleared to resume, following investigations into an adverse reaction by a participant in each trial.
Final Thoughts for Investors
While there is much speculation about how markets will react to various election scenarios, making investment decisions in response to a single event – even a big one – is risky. Stay focused on long-term objectives and speak with a financial professional about how to advance toward your long-term goals in any political or economic environment.