The Week on Wall Street
Stocks soared last week as investors anticipated that a split Congress would raise legislative hurdles to changing corporate taxes and adjusting regulatory oversight of big technology companies.
The Dow Jones Industrial Average jumped 6.87%, while the Standard & Poor’s 500 tacked on 7.32%. The Nasdaq Composite index surged 9.01% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, rose 7.65%.
Bulls Take Charge
Coming off a poor close to October, stocks surged throughout election week, jumping higher in pre-election trading on bargain hunting and strong factory activity. The rally picked up steam as Americans went to the polls and shifted into overdrive Wednesday morning.
Investors were buoyed by Congressional results that indicate that the next president would have to work with a divided Congress. Though a divided Congress might result in a smaller potential stimulus package and continued gridlock, investors seemed to believe that was outweighed by a diminished risk of higher taxes, greater regulation, and policy initiatives that might be challenging to businesses.
Stocks took a pause to close out the week, even as a solid jobs report saw the unemployment rate fall a full percentage point to 6.9%.
Overlooked amid the powerful rally in stock prices was the swing in yields last week. Action in the bond market is important since 10-year Treasury yields are a benchmark for setting borrowing costs for businesses and they represent another view on the strength of the economic recovery.
The 10-year Treasury note rose as high as 0.942% during after-hours trading on election evening and dropped to 0.768% by the end of normal trading hours on Wednesday. The rate is back up to 0.95% today on Pfizer's COVID-19 vaccine.
THIS WEEK: KEY ECONOMIC DATA
Thursday: Consumer Price Index (CPI), Jobless Claims.
Friday: Consumer Sentiment.
THIS WEEK: NOTABLE COMPANIES REPORTING EARNINGS
Monday: McDonald’s Corporation (MCD), Simon Property (SPG)
Tuesday: D.R. Horton (DHI), Rockwell Automation (ROK), Datadog, Inc. (DDOG)
Wednesday: Air Products and Chemicals, Inc. (APD)
Thursday: Tencent Holdings (TCEHY), The Walt Disney Company (DIS), Cisco Systems (CSCO), Applied Materials (AMAT)
Friday: Draftkings, Inc. (DKNG)
Despite the great news from Pfizer, COVID-19 cases may continue to rise as we approach the winter months, but we see the surprisingly strong jobs report and strong fundamental data (ISM Services in October) as precursors of moderate economic expansion. With the cold weather will come more illness, but with every passing day we are one day closer to an effective vaccine that will be the true savior of our economy. Today, we are truly one leap forward.
Like it or not, the naysayers of economic Armageddon have been proven wrong by the democratic process unfolding, and the economy remains as intended by the Fed's monetary stimulus - providing the bridge to the fiscal stimulus now in sight. These two forces will provide a relief needed to those in need of support, and confidence to a sustainable, moderate economic expansion as already implied in our first reading for Q3:GDP (33.1%).
I am not naive enough to believe that there won’t be a saga of political drama yet to unfold in the coming days, weeks, and months. Barring any last-minute judicial intervention, the stock market is pricing in a Biden presidency and perhaps control of Congress. The run-off for the Senate seat in Georgia may ultimately define which party has a true "majority.” Moreover, the political re-alignment in process dictates economic policy re-configuration and leads us to the conclusion that volatility will certainly remain until the judicial branch settles the legal claims and we can get all branches of government to operate (notice we didn’t say cooperate).
If we continue to allow our process to work, we will manage the risk of volatility and regain our calmer seas ahead. Let's get back to what we do best - overcome the headwinds and grow our economy so that we can give every hard working American a fair sustenance for their family and a reason to look forward to being thankful this November. Today, things are looking up from an economic perspective.
Have a good week.