Stocks Performance (U.S. Stocks)
Global equity markets held on to most of the week’s earlier gains that were driven by signs of continued recovery in the US, Europe, and China. While political risk for markets has risen for the near-term, stocks quickly shook off the worst of the initial negative reaction.
The news of Trump’s infection raised questions about his ability to campaign (including whether the second debate will still take place on October 15), the timeline of confirmation hearings for his Supreme Court nominee and whether a deal can be reached on more fiscal stimulus.
The large-cap indexes broke a string of four weekly losses and moved higher, although gains were more robust among small-caps. Most sectors within the S&P 500 Index recorded modest positive returns, except for energy stocks, which added to their sharp recent declines.
By sectors, the most outperformed weekly stocks were led by Commercial Services at 4.09%, followed by Health Services sector at 3.89%, Finance 3.53%, and Producer Manufacturing at 3.30%. Meanwhile, the weakest sectors were from the Energy Minerals (-2.88%), Industrial Services (-0.17%), Communications (0.43%), and Health Technology sector (0.53%).
Indices Performance
The S&P 500 and Dow Jones Industrial Average snapped four-week losing streaks this week, and the Nasdaq Composite performed comparably with a 1.5% gain. Market drifted lower on Friday, as news about the President tested positive for COVID-19 and the mega-caps sold off to end the week.
European and Chinese stock markets were all higher, as better-than-expected economic data supporting the rise. Japanese stocks underperformed as technical problems forced a shutdown of the Tokyo Stock Exchange.
Oil Sector Performance
The uncertainty around prospects for a stimulus deal increased pressure on the price of oil, which was already sliding on concerns of oversupply. Prices had slumped more than 4% on Friday amid uncertainty surrounding Trump’s health, adding to concern that rising coronavirus case numbers that could dampen global economic recovery.
Market-Moving News
U.S. Stock Indexes Back on Track
The major U.S. stock indexes rose 1% to 2%, after four consecutive weekly declines. At Friday’s close, the S&P 500 was down 6% from its early September record high, the NASDAQ was down 8%, and the Dow was 4% lower.
Indexes Six-Month Surge
The performance of the NASDAQ from April through September was the index’s best two-quarter result since 2000, while the S&P 500’s performance was the best since 2009. The NASDAQ surged 45% over the past six months, while S&P 500 gained more than 26%.
Mixed Jobs Report
Although the U.S. economy added 661,000 jobs in September, the latest monthly employment report provided further evidence of a slowdown in the pace of the economic recovery and in the labour participation rate. Of the 22 million jobs lost in March and April, roughly half have since been recovered.
Coronavirus Relief
A $2.2 trillion coronavirus relief package proposed by the U.S. House of Representatives on Thursday failed to win backing from House Republicans.
President Tests Positive
President Donald Trump and First Lady Melania Trump tested positive for COVID-19 on Thursday, after learning that a presidential aide, Hope Hicks, had tested positive following a campaign trip with the president. Global and U.S. stock markets fell modestly on Friday.
Oil Reversal
A recent oil climbed-up stalled, as U.S. crude fell about 8% for the week, trading at around $37 per barrel on Friday. Soft demand for transportation fuels is one of the key factors that has recently weighed on broader oil consumption, putting pressure on prices.
Earnings Ahead
With earnings season just around the corner, expectations are low, but not as low as they were a few weeks ago. On average, analysts surveyed by FactSet are expecting third-quarter profits of companies in the S&P 500 to drop by 21% compared with the same period a year earlier. That is slightly lower from the 22% decline that had been forecast in early September.
Other Important Macro Data and Events
As improving data lifted economic sentiment¸ government bond yields climbed, and the US dollar retreated. The lower greenback in turn boosted the price of gold.
Economic data was mostly better than expected. The Conference Board Consumer Confidence Index was above forecasts, jumping to its highest level since March and posting its biggest increase in 17 years. The ISM PMI came in a bit lower than expectations, though remains at its highest level in almost two years and still shows manufacturing activity growing at a solid pace.
However, weekly initial jobless claims were lower than forecast. The monthly payroll report showed a disappointing loss of momentum. The equity advance waxed and waned as prospects for a stimulus deal were buffeted by statements from the negotiating parties that alternated between renewing hope and casting doubt. At week’s end, the two sides remained far apart on key issues, and the President’s health injected new doubts about the path forward.
In addition, the other foreign markets also mostly marking a-better-than-expected economic data. Euro area economic confidence rose for the fifth straight month, stronger retail sales, and falling unemployment in Germany and in Italy. Japan also reported a surge in retail sales, better-than-expected industrial production and the highest manufacturing PMI in seven months. While China also noted a stronger data that lent support to equities worldwide. Manufacturing and services PMIs in China all surpassed expectations, indicating a continuing recovery.
What We Can Expect from the Market this Week
With earnings season just around the corner, expectations are low, but not as low as they were a few weeks ago. On average, analysts surveyed by FactSet are expecting third-quarter profits of companies in the S&P 500 to drop by 21% compared with the same period a year earlier. That’s down slightly from the 22% decline that had been forecast in early September.
Following this week performance, we think that encouraging release of economic data will likely be more influential to lift global stocks despite new election uncertainty and increasing new COVID-19 cases. A combination of a sustained but gradual economic expansion, an extension of monetary-policy stimulus and a rebound in corporate profits will set the broader course for the markets.
Important economic news released this week including ISM services index on Monday, JOLTS job openings and trade balance on Tuesday, the September Fed meeting minutes and consumer credit on Wednesday, weekly unemployment claims on Thursday, and wholesale inventories on Friday.
