Stimulus talks led investors in a merry dance last week.
So far in 2020, stock markets have been sensitive to fiscal stimulus. Last week, there was optimism a new stimulus package could be negotiated before the election. There also was skepticism about whether it would happen. An expert cited by CNBC stated, “There’s a lot of back and forth on stimulus and every headline makes the market move a little bit, but there’s no follow-through because we don’t have a clear picture on that front.”
Economic data didn’t provide a clear picture either. Some data points suggested economic recovery was continuing, while other information indicated the pandemic was impeding economic growth. For instance:
- Demand for services was up. The IHS Markit Purchasing Manager’s Service Index, which measures the performance of healthcare, technology, and hospitality businesses, showed better-than-expected improvement. The index was at 56. Any reading above 50 indicates expansion, reported Barron’s.
- It was a seller’s market for homes. Low interest rates combined with the space requirements of remote work and online learning have led to high demand for homes. Typically, a balanced housing market has a 6-month supply of existing homes for sale. At the end of September, there was a 2.7-month supply, per Barron’s.
- Corporate earnings were better than expected. About one-fourth of the companies in the Standard & Poor’s (S&P) 500 Index have reported earnings so far. More than 80 percent have reported better-than-expected results. Stronger profits suggest companies are recovering; however, FactSet reported this is “the second largest year-over-year decline in earnings since Q2 2009.”
- Unemployment claims slowed but remained higher than normal. There were fewer new claims for unemployment benefits in last week’s report. However, the number of unadjusted initial claims is relatively high (756,617 in 2020 vs. 186,748 in 2019), reported the Department of Labor. Overall, more than 23 million Americans filed for unemployment benefits.
- Consumers were discontent. The University of Michigan’s Consumer Sentiment Survey showed consumers were concerned about current economic conditions. Sentiment was down 25 percent year-over-year. Richard Curtin, director of the survey, believes current discontent may continue into 2021.
- COVID-19 cases spiked higher. A significant obstacle to economic growth is the virus. Last week, the number of coronavirus cases spiked. There were more than 83,000 new cases in the United States on Friday and 914 deaths, reported Johns Hopkins Coronavirus Resource Center.
Major U.S. stock indices finished the week lower.
The Election Is Almost Here
Apprehension about the election has many people worrying about how financial markets may be affected by the outcome. Here are some thoughts to ponder:
“Election years are not often the best times for stock market investors. Over the past 90 years shares included in the S&P 500, an index of America’s biggest firms, have returned an average of about 8.5 percent a year. The 12 months leading up to each of the 22 presidential elections in that time have been leaner affairs, returning just 6 percent…The democratic cycle, for all its virtues, tends to bring with it a dose of uncertainty – first about who will win and then about what that victor will do. And uncertainty tends to make financiers nervous.”
–The Economist, October 10, 2020
“Many investors who ask questions about the election and its market impact seem to be looking for easy answers; or a clear and consistent relationship between variable X (in this case the election) and market performance. That does not happen with consistency when comparing economic variables, sentiment conditions, earnings growth rates, valuations, etc., to market performance…and it certainly doesn’t happen with politics and the market.”
–Liz Ann Sonders, Chief Investment Strategist, Charles Schwab & Co., October 5, 2020
“What seems reasonable is to expect some lift in bond yields from their historic low levels. Just a return to normalcy, once a vaccine is developed and widely available, ought to raise yields from their preternaturally depressed levels.”
–Randall Forsyth, Columnist, Barron’s, October 23, 2020
“Politics can bring out strong emotions, but an election has not significantly changed the direction of market movements, historically.”
–Chao Ma, Global Portfolio and Investment Strategist, Wells Fargo, October 20, 2020
Possibly the most important thing investors can do is stay focused on long-term financial goals and avoid making changes based on short-term fears.
Fun Election Day Facts
Next week we will elect the 46th president of the U.S. This 2020 election has felt significant for many people. Elections in general have been a significant part of our democracy since the country was founded. Here are some fun election facts about the U.S. and other countries.
In the beginning, Tuesday was a convenient day to vote. Not now, but in the 1900s farmers had to travel far to vote and because they didn’t want to travel on Sunday and had to be back home for market day on Wednesday, Tuesday was the most convenient day. Oh, and November is post-harvest!
Election Day in The United States isn’t a national holiday
Among democracies that vote on weekdays, the United States is one of the few that doesn’t deem Election Day a national holiday, although it’s a civic holiday in Puerto Rico and a growing list of states.
Election results used to take a while
In the election of 1876, Samuel Tilden and Rutherford B. Hayes both declared victory because the official count took until two days before inauguration to verify. A specially created bipartisan commission voted 8–7, along party lines, awarding all electoral votes —and the presidency—to Hayes.
The United States has notoriously low voter turnout
In many of the countries with near 100 percent turnout, voting is compulsory. Australians who don’t cast ballots face fines that more than double after the first offense. A Belgian who fails to vote four times loses the right to vote for the next ten years. Voting is also mandatory in Ecuador, but only for those who are literate.
Astronauts can vote from space
Thanks to a Texas law, astronauts from Texas can receive their ballot in space from Mission Control in Houston. They beam their completed ballots back to Earth and list their out-of-state address as “low-earth orbit.”
The U.S. has long election seasons
The 2020 American presidential race will have lasted 1,194 days when it ends on November 3. In comparison, Japan limits political campaigns to no more than 12 days and France limits elections to no longer than two weeks.