The Pulse – What’s happening in the Economy and the Capital Markets: 11/2/20 – 11/6/20

November 12, 2020

Executive Summary

It was a strong week for the markets with a positive response to the election and the strongest election-related performance since the 1930s. History suggests that a divided government is positive for both bonds and stocks.[1]

Economic news continues to be mixed – lagging manufacturing data is positive while sectors directly impacted by COVID-19 took a sharp turn for the worse in the high frequency data.  Meanwhile, the largest IPO in history was shelved by the Chinese government.

The Markets

The markets rallied following election results that signaled gridlock will likely prevail, mitigating the likelihood of any tax increases on capital gains and income. The S&P 500 rose 2.2% on Wednesday, its strongest result for the day following an election. It rose another 2% on Thursday and ended the week with its best election week gain since 1932, according to Barron’s.

The market interpreted from the election “lower growth for longer,” which would reduce the probability and magnitude of inflation and result in interest rates remaining low for the foreseeable future. Sectors with secular growth, such as technology and healthcare, fared best. Sectors that are perceived as low- or challenged-growth, such as utilities, real estate and energy, performed the worst.

Global market results were similar with developed and emerging markets’ returns in line with the U.S. markets.

The Economic News

The economic news remains very mixed. Labor and manufacturing reports came in above expectations. However, the high frequency data as it relates to the consumer is showing a significant slowdown, likely due to rising COVID-19 cases.

This week’s Jobs Report exceeded expectations across multiple categories:

  1. The Oct Unemployment Rate exceeded expectations at 6.9%, down 1 percentage point from September
  • The Labor Force Participation Rate reported a positive increase.
  • The Underemployment Rate also reported positive news, declining 0.7 percentage point from September.
  1. Jobs (aka non-farm payrolls) increased 638k versus the expected 580k.
  • The Private sector (aka non-government payrolls) excelled increasing 906k versus the expected 680k.
  • Job numbers in manufacturing disappointed increasing just 38k from September and below expectations.

ISM Manufacturing performed better than expected with the index beating September at 59.3.

  • New Orders really shined – up 8% from September and exceeding expectations.
  • Durable Goods and Capital Goods orders met expectations reporting flat against September.

High Frequency Data

Mobility and engagement, a sign of consumer activity, has started to decline after peaking in October.

Dallas Federal Reserve Mobility & Engagement Index (lags by approximately 1 week)

The High Frequency Data shows the sectors of the economy that were most directly impacted by COVID-19 – restaurants, air travel, lodging – regressing.

Focus of the Week: COVID-10-impacted industries

Restaurant dining is dropping precipitously. (source: OpenTable)

Similarly, air passenger volume has also declined, diverting from its rebound trend. (source: TSA)

A Few Stories that Caught My Eye

[1] Oxford Economics, Macro Musings, 11/6/20.


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